SBS BIOTECH UNIT II,SIRMOUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX-1, CHANDIGARH

Findings of the AO: Since the genuineness of the excess claim amounting to Rs.10,91,16,920/- for deduction u/s 80IC in A.Y. 2017-18 could not be verified in the absence of the proper & complete reply/supporting documents of the assessee, I am therefore satisfied that the said income has escaped assessment.

Applicability of the provisions of section 147/151 to the facts of the case: In this case, a return of income was filed for the year under consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this cases, the only requirement to Initiate proceedings u/s 147 is reason to believe which has been recorded in paragraph 6. The case is within four years from the end of 8 the Assessment Year under consideration. Therefore, necessary approval u/s 151 of the Income Tax Act, 1961 is solicited for issuance of notice u/s 148 of the Act for the Assessment Year 2017-18.”

Section 80-IC of the Act provides for Special Provisions in respect of certain undertakings or enterprises in certain special category states. The relevant extract of the section is reproduced below: "(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub- section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3).

Further, section 80-IC also provides for 100% deduction from eligible profits in case any substantial expansion is undertaken by an undertaking or an enterprise. The assessee during the AY 2012-13, undertook a substantial expansion and therefore become eligible for claiming 100% deduction from eligible profits for five assessment years. Due attention is invited to the fact that section 80-IC had a sunset clause and In order to avail benefit of the said section, the requirements had to be complied with before 1st day of April 2012.

The intent of section 80IC of the Act has been explained by Central Board of Direct Tax (CBDT) vide Circular No. 7/2003 dated September 5, 2003 (memorandum explaining the provisions of Finance Bill, 2003) which is reproduced below: "49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States, in order to give boost to the economy in these States. With a view to give effect to these new packages a new section 80-IC has been inserted to allow a deduction for ten years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial expansion, in the States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by at least 50% of the book value of the plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken."

The circular makes it clear that section 80IC of the Act was inserted to give effect to the new package announced by the Union Cabinet. The circular further clarifies that this section provides for deduction for a period of 10 years from the profits of new undertaking or enterprise or existing undertaking or enterprise on their substantial expansion. However, the word 'existing' qualifies only the undertaking or enterprises and does not mention any particular date for carrying out substantial expansion.

The assessee was eligible to claim deduction under section 80-IC for ten assessment years beginning from AY 2009-10 till AY 2018-19. For first five assessment years, the assessee was eligible for 100% deduction from eligible profits and for the remaining five years, the assessee was eligible for 25% deduction.

However, the assessee undertook substantial expansion in AY 2012-13 and therefore, It was entitled to claim 100% deduction from eligible profits again for fresh period of five assessment years but within the block of the original 10 assessment years. The assessee firm had fully complied with the provisions of the 11 law and had claimed deduction during the above-mentioned period within the block of ten assessment years only.

In the recent judgement of Hon'ble Supreme Court of India in case of PCIT v. Aarham Softronics [2019] (102 taxmann.com 343), the controversy with regard to two initial assessment years within the block of 10 assessment years has been put to an end. The decision of the Supreme Court has been delivered in favour of assessee whereby it is affirmed that there could be two initial assessment years, one at the time of commencement of operations and another at the time of completion of substantial expansion. The advantage of this provision is also accrued to those existing units, if they carry out "substantial expansion" of their units by Investing required capital, in the assessment year relevant to the previous year. Relevant extract of the judgement is reproduced below: "24. The aforesaid discussion leads us to the following conclusions: (a) Judgment dated 20th August, 2018 in Classic Binding Industries case omitted to take note of the definition 'initial assessment year' contained in Section 80-IC itself and instead based its conclusion on the definition contained in Section 80-IB, which does not apply in these cases. The definitions of 'initial assessment year' in the two sections, viz. Sections 80-IB and 80-IC are materially different. The definition of 'initial assessment year' under Section 80-IC has made all the difference. Therefore, we are of the opinion that the aforesaid judgment does not lay down the correct law. (b) An undertaking or an enterprise which had set up a new unit between 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh of the nature mentioned in clause (ii) of sub-section (2) of Section 80-IC, would be entitled to deduction at the rate of 100% of the profits and gains for five assessment years commencing with the 'initial assessment year' For the next five years, the admissible deduction would be 25% (or 30% where the assessee is a company) of the profits and gains. (c) However, in case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of Section 80-IC by such an undertaking or enterprise, within the aforesaid period of 10 years, the said previous year in which the substantial expansion is undertaken would become 'initial assessment year', and from that assessment year the assessee shall been entitled to 100% deductions of the profits and gains. (d) Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6)." (Emphasis Supplied) 13. Accordingly, the assessee's claim of 100% deduction again at the time of substantial expansion is supported by the said judgement. Therefore assessee had rightly availed deduction at 100% in subject AY, being 9th year, within the block of eligible ten assessment years.

The assessee availed 100% deduction for assessment years from AY 2013-14 on the basis that substantial expansion has been undertaken by the assessee on 30.03.2012. Further, these AYs fall within the block of 10 assessment years for which the assessee Is eligible to claim deduction under section 80-IC. Although the substantial expansion was undertaken by the assessee during the AY 2012-13 but since the first block of five years i.e. from AY 2009-10 to AY 2013-14 was still not exhausted, the assessee continued to avail 100% deduction till AY 2012-13 on the 12 basis of initial setup and 100% deduction for four assessment years l.e. AY 2013-14 to AY 2017-18 on the basis of substantial expansion carried out.

For AY 2017-18, being 9th assessment year under the block of eligible 10 assessment years, assessee availed 100% deduction even though the substantial expansion took place in AY 2012-13. This was due to overlapping of two assessment years i.e. AY 2012-13 and AY 2013-14 between first block and second block. Due to the overlapping of two assessment years, the assessee would have faced genuine hardship and deduction for those two assessment years would have been limited to 25% of eligible profits. Accordingly, the assessee claimed 100% deduction under section 80-IC in AY 2017-18.

It was submitted that the AO, after verifying the submissions/explanation given by the assessee, did not find any adverse inference thereon and accepted the claim of the assessee. In other words, no addition was made by the Ld. AO in the reassessment proceeding in respect of issues that are subject matter of reasons recorded for reopening the assessment and the contents of the reassessment order so passed u/s 147 r/w 144B read as under: "1. The case has been re-opened on the issue for verification of the claim of deduction u/s 80IC of the IT act 1961 of @100%. Notice u/s 148 of the I. T. Act dated 30/03/2021 has been issued and served to the assessee. The assessee has filed return of income in response of notice u/s 148 of the I. Τ. Act declaring total income at Rs 2,68,78,900/-, Notice u/s 143(2) of the I.T. Act dated 30/06/2021.

The assessee has shown Profit from Manufacturing 3. The assessee submitted reply on e-filing portal in response to notices under section 142(1) of the Act. The reply of the assessee has been verified and the assessment is completed accepting the total Income of Rs. 2,68,78,900/-as per return of income in response of notice u/s 148 of the IT Act 1961.

It was submitted that the AO during the reassessment proceeding specifically raised query on 80- IC deduction which was answered by the assessee to the satisfaction of the AO. Since the AO has already made proper enquiry with respect to the issue as also evident from the order, therefore, there is no occasion to assume jurisdiction under section 263 of the Act in the assessee case.

It was further submitted that the AO having recorded the reasons for reopening the assessment and having formed a belief that income of the assessee had escaped assessment, had not made any addition in the reassessment proceedings in respect of issues that are subject matter of reopening. Hence, the very basis of formation of belief for the AO vanishes. Hence, the AO could not have framed any reassessment per se. It was 15 submitted that logically, the AO should have simply dropped the initiation of reassessment proceedings instead of passing a separate reassessment order. Once, the reassessment order per se framed by the AO is not sustainable in the eyes of law, any revision proceedings under section 263 seeking to revise such unsustainable order cannot be accepted in the eyes of law. In support, reliance was placed on the Hon’ble Telangana and Andhra Pradesh High Court in case of PCIT vs Shri P Narasimha Reddy (ITA no 97/2019), ITAT Chandigarh Benches in case of Ram Lal (ITA no 370/2022) and ITAT Hyderabad Benches in case of Ganga Vinay Babu (ITA no 123/Hyd/2021).

It was further submitted that without prejudice to the above, even on merits, the assessee is eligible to claim 100% deduction under section 80-IC of the Act for the impugned assessment year 2017-18. In this regard, it was submitted that the assessee commenced its business operations on 3rd of November, 2008 and set up its manufacturing facility in the state of Himachal Pradesh in an area notified by the government for the purpose of availing deduction under section 80-IC of the Act. Further, the assessee was engaged in manufacturing of Ayurvedic products which was outside the ambit of articles specified in the Thirteenth Schedule. Accordingly, the assessee was covered under sub-clause (ii) of clause (a) of sub-section (2) of section 80-IC and therefore was eligible to claim deduction under section 80-IC of the Act.

It was submitted that Section 80-IC of the Act also provides for definition of "Initial assessment year" which means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture 17 or produce articles or things, or commences operation or completes substantial expansion. Thus, section 80-IC also provides for 100% deduction from eligible profits in case any substantial expansion is undertaken by an undertaking or an enterprise. The assessee during the AY 2012-13, undertook a substantial expansion and therefore become eligible for claiming 100% deduction from eligible profits for five assessment years. Due attention is invited to the fact that section 80-IC had a sunset clause and in order to avail benefit of the said section, the requirements had to be complied with before 1st day of April 2012. Accordingly, in order to claim benefit of 100% deduction, the assessee undertook substantial expansion before the year ending 31 March 2012. Copy of Certificate with regard to substantial expansion issued by the Industrial Department of Himachal Pradesh has been placed on record.

It was further submitted that the basic intent of the lawmakers behind the introduction of section 80-IC was promotion of the said notified areas through setting up of new manufacturing units or substantial expansion of already established units. This would promote development, employment and revenue generation in such backward areas. Therefore, in order to encourage people to set up undertaking /enterprise in such areas, deduction was provided under section 80-IC. The intent of section 80-IC of the Act has been explained by Central Board of Direct Tax (CBDT) vide Circular No. 7/2003 dated September 5, 2003 (memorandum explaining the provisions of Finance Bill, 2003) which is reproduced below: "49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States, in order to give boost to the economy in these States. With a view to give effect to these new packages a new section 80-IC has been inserted to allow a deduction for ten years from the profits of new undertakings or enterprises or existing undertakings or enterprises on their substantial expansion, in the States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States. For this purpose, substantial expansion is defined as increase in the investment in the plant and machinery by at least 50% of the book value of the plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken."

It was submitted that the assessee was eligible to claim deduction under section 80-IC for 10 assessment years beginning from AY 2009-10 till AY 2018-19. For first five assessment years, the assessee was eligible for 100% deduction from eligible profits and for the remaining five years, the assessee was eligible for 25% deduction. However, the assessee undertook substantial expansion on 30/03/2012 and therefore, it was entitled to claim 100% deduction from eligible profits again for fresh period of five assessment years but within the block of the original 10 assessment years. The assessee firm had fully complied with the provisions of the law and had claimed deduction during the above-mentioned period of 10 assessment years only.

It was submitted that in the judgement of Hon'ble Supreme Court of India in case of PCIT v. Aarham Softronics [2019] (102 taxmann.com 343), the controversy with regard to two initial assessment years within the block of 10 assessment years has been put to an end. The decision of the Supreme Court has been delivered in favour of assessee whereby it is affirmed that there could be two initial assessment years, one at the time of commencement of operations and another at the time of completion of substantial expansion. The advantage of this provision is also accrued to those existing units, if they carry out "substantial expansion" of their units by investing required capital and the findings of the Hon’ble Supreme Court read as under: (a) Judgment dated 20th August, 2018 in Classic Binding Industries case omitted to take note of the definition 'initial assessment year' contained in Section 80-IC 19 itself and instead based its conclusion on the definition contained in Section 80-IB, which does not apply in these cases. The definitions of 'initial assessment year' in the two sections, viz. Sections 80-IB and 80-IC are materially different. The definition of 'initial assessment year' under Section 80-IC has made all the difference. Therefore, we are of the opinion that the aforesaid judgment does not lay down the correct law. (b) An undertaking or an enterprise which had set up a new unit between 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh of the nature mentioned in clause (ii) of sub-section (2) of Section 80-IC, would be entitled to deduction at the rate of 100% of the profits and gains for five assessment years commencing with the 'initial assessment year' For the next five years, the admissible deduction would be 25% (or 30% where the assesse is a company) of the profits and gains. (c) However, in case substantial expansion is carried out as defined in clause (ix) of sub-section (8) of Section 80-IC by such an undertaking or enterprise, within the aforesaid period of 10 years, the said previous year in which the substantial expansion is undertaken would become 'initial assessment year', and from that assessment year the assessee shall been entitled to 100% deductions of the profits and gains. (d) Such deduction, however, would be for a total period of 10 years, as provided in sub-section (6)”

It was accordingly submitted that the assessee's claim of 100% deduction again at the time of substantial expansion is supported by the said judgement. Therefore the assessee had rightly availed 100% deduction within the block of eligible 10 assessment years. The assessee availed 100% deduction for assessment years starting from AY 2013-14 on the basis that substantial expansion has been undertaken by the assessee on 30.03.2012. Further, these AYs fall within the block of 10 assessment years for which the assessee is eligible to claim deduction under section 80-IC. It was submitted that the claim of deduction by the assessee is also supported by the certificate (in Form 10CCB) issued by the Chartered Accountant (CA) certifying that the assessee is eligible to claim 100% deduction which has been placed on record.

It was submitted that the provisions of section 80-IC of the Act have been enacted with a view to encourage the setting up of new industrial undertaking/expansion of the industries in certain special category State and object is sought to be achieved by granting exemption or concession from tax on the profits earned by such establishment. Ordinarily, a provision in a taxing 20 statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it, too has to be construed so as to advance the objective of the provision and not to frustrate it as laid down in case of CIT v. UP State Agro Industrial Corpn. (1991) 188 ITR 370, 375(AII). Amongst others, in the following cases, the Hon'ble Supreme Court has held that incentive provisions/beneficial provisions should be construed liberally: a) Bajaj Tempo Ltd. v. CIT [1992] 62 Taxman 480 (SC) "A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally!... Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it." b) Broach Distt. Cooperative Cotton Sales Ginning & Pressing Society Ltd. v. CTT [1989] 177 ITR 418 (SC) "The object of section 81(i) was to encourage and promote the growth of co- operative societies, and, consequently, a liberal construction must be given to the operation of that provision." c) CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431 (SC)

Further, reliance was placed on following judicial precedents wherein the Courts laid down preposition that provisions relating to exemption or concession must as far as possible be liberally construed and in favour of the assessee:  Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC)  CIT v. Gaekwar Foam & Rubber Co. (1959) 35 ITR 662, 673 (Bom)  Capsulation Services Pvt. Ltd v. CIT, (1973) 91 ITR 566, 570 (Bom)  CIT v. Simpson & Co. (1980) 122 ITR 283, 287 (Mad.)  CIT v. Sanghi Beverages Pvt. Ltd. (1982) 134 ITR 623 (MP) 29. In light of the above legal arguments and judicial precedents and considering the fact that there is no express prohibition in section 80-IC of the 21 Act for grant of benefit where a substantial expansion is made by newly set up unit during a qualified period, the assessee is eligible to claim 100% deduction for AY 2017-18 and which has been rightly allowed by the Assessing officer.

Further, reference was drawn to the findings of the ld PCIT in para 6 of the impugned order and it was submitted that ld PCIT has held that “In view of the discussion above, at this time, the assessment order passed u/s 147 r.w.s. 144B of the Act dated 30.03.2022 can be held to be erroneous as well as prejudicial to the interests of revenue only if the factual verifications directed to be carried out by the Jurisdictional Assessing officer(JAO) lead to a finding that is contrary to the submission made by the assessee, which prima facie does not appear to be the case here.” It was submitted that ld PCIT himself held that submission made by assessee which prima facie does not appear to be case here, meaning thereby he is also of the view that the assessee is eligible for 100% claim of deduction, at the same time, ld PCIT has directed the JAO to verify the submission made by the assessee and it was submitted that JAO has not found any defect in facts given in submission before PCIT-1 Chandigarh.

In view of the aforesaid facts and legal position, it was submitted that AO has already verified and accepted the claim of assessee. Further, ld PCIT himself held in para 6 of order stated that submission made by assessee is not prima facie erroneous as well as prejudicial to the interests of revenue and therefore we request to quash the revisionary order passed u/s 263 of Income Tax Act.

Per contra, the Ld. CIT/DR has vehemently argued the matter. It was submitted that firstly, the AO has passed a very cryptic order and it is not clear that as to whether he has examined the matter relating to claim of deduction under section 80IC of the Act. Further, our reference was drawn to the show cause notice issued by the Ld. Pr. CIT wherein it has been stated that even if the assessee firm has carried out substantial expansion on or before 31/03/2012, the assessee firm is entitled to claim deduction under section 80IC @ 100% of eligible profit till A.Y 2016-17 being the 5th A.Y. after substantial expansion. However the 22 assessee firm has claimed deduction @ 100% of eligible profit for the sixth A.Y. i.e; impugned A.Y and therefore the assessee has claimed excess deduction under section 80IC of the Act.

Further, our reference was drawn to the findings of the Ld. Pr. CIT in para 4 of the impugned order wherein the Ld. PCIT has stated that the technical arguments of the assessee against the present revision proceedings initiated based on decision and findings in law of the various Hon'ble Courts and Tribunal Benches are discounted and disregarded as either parimateria inapplicable or since the orders of the ITAT Benches in other cases are only orders in personam and not orders in rem or are the ratios of non-jurisdictional High Courts not directly binding on the facts of this instant case of the assessee. Further, the legislated statutory provisions and substance of Explanation 2(a) to section 263(1) of the Act would supersede and overwhelm all other legal considerations including the fact of previous reopening and reassessment u/s 147 r.w.s 144B of the Act in according permission to re-verify and re-examine the matters in reference being the question of the proportion of deduction (viz. 25% versus 100%) u/s 80IC of the Act and the consequent assessability and chargeability to tax of any additional incomes in the hands of the assessee. This is because prior to the initiation of the revision proceedings, enquiries/examinations in the manners in which these ought to have been carried out were not so carried out rendering such previous impugned order of assessment erroneous and prejudicial to the interests of Revenue.

Our reference was further drawn to the findings of the ld PCIT that where, on the merits of the case, he has stated that the factual matrix being the Assessment Years in which the expansions of the pertinent activities commenced and the legal positions upheld by the Hon'ble Courts, particularly that by the Apex Court in 102 Taxmann.com 343 (2019) in the case of Aarham Softronics are to be carefully examined and applied by the Assessing Officer before drafting and passing his/her order of assessment following this direction to examine revising of assessment u/s 263 of the Act.

Further, our reference was drawn to the findings of the Ld. Pr CIT in para 6 of the impugned order wherein the Ld. Pr. CIT has stated that at this time, the assessment order passed u/s 147 r.w.s. 144B of the Act dated 30.03.2022 can be held to be erroneous as well as prejudicial to the interests of revenue only if the factual verifications directed to be carried out by the Jurisdictional Assessing 26 Officer(JAO) lead to a finding that is contrary to the submission made by the assessee, which prima facie does not appear to be the case here.

Further, our reference was drawn to the findings of the Ld. Pr CIT in para 7 of the impugned order wherein the Ld. Pr. CIT has stated that he was of considered opinion that the assessment order u/s 147 r.w.s. 144B of the Act dated 30.03.2022 passed by the Assessing Officer would be erroneous as well as prejudicial to the interests of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act only if the factual verifications as above directed to be carried out by the JAO are found to yield results inconsistent with the stand of the assessee. This is because the order then would not have been passed in accordance with the law, which should have been done, thus making such assessment order passed not only erroneous but also prejudicial to the interests of revenue in the matter of proper, detailed, satisfactory and complete inquiries into the assessee's claim that the issue of deductibility u/s 80IC of the Act, viz. whether at 25% or 100%, has already been examined and accepted during the earlier assessment proceedings, and into the consequent matter of arising and bringing to tax any disallowed portions of the deductions claimed u/s 80IC as incomes in the hands of the assessee. The Jurisdictional Assessing Officer is therefore directed to verify the factual submissions as above made by the assessee, and only if found correct and satisfactory, pass the necessary order u/s 143 of the Act dropping the matters in reference. If the contrary scenario of that the assessee's submissions and arguments are unsatisfactory is obtained in the said matter, such matter can be processed by the JAO for further action of assessment and consequent initiation/imposition of penalty as applicable under the statute. The assessee is at liberty to adduce the facts as deemed relevant before the JAO in consequence to this order. The JAO shall allow the assessee adequate opportunity of being heard and to make relevant submissions, and reverify the submissions already made. It may be ensured that any fresh assessment order is passed within the prescribed time as stipulated under section 153(3) of the Act.

We have heard the rival contentions and pursued the material available on record. The ld. Pr.CIT while exercising his jurisdiction u/s 263 of the Act has stated that the legislated statutory provisions and substance of Explanation 2(a) to section 263(1) of the Act would supersede all other legal considerations including the fact of previous reopening and reassessment u/s 147 r.w.s 144B of the Act in according permission to re-verify and re-examine the matters in reference being the question of the proportion of deduction (viz. 25% versus 100%) u/s 80IC of the Act for the reason that prior to the initiation of the revision proceedings, enquiries/examinations in the manners in which these ought to have been carried out were not so carried out by the Assessing officer rendering such previous impugned order of assessment erroneous and prejudicial to the interest of Revenue. Elaborating the same, the ld Pr. CIT has stated that the factual matrix being the Assessment Years in which the expansions of the pertinent activities commenced and the legal position in light of the Hon'ble Supreme Court decision in the case of Aarham Softronics are to be carefully examined and applied by the Assessing Officer before drafting and passing the assessment order.

The ld Pr. CIT has further stated that at this time, that is, at the time of passing of the impugned order u/s 263, the assessment order passed u/s 147 r.w.s. 144B of the Act dated 30.03.2022 can be held to be erroneous as well as prejudicial to the interests of Revenue only if the factual verifications directed to be carried out by the Jurisdictional Assessing Officer lead to a finding that is contrary to the submission made by the assessee, which prima facie does not appear to be the case here. The Ld. Pr. CIT has finally stated and concluded by holding that at this time, he was of considered opinion that the assessment order u/s 147 r.w.s. 144B of the Act dated 30.03.2022 passed by the Assessing Officer 28 would be erroneous as well as prejudicial to the interests of Revenue in accordance with the Explanation 2(a) to section 263(1) of the Act only if the factual verifications as directed above to be carried out by the Jurisdictional Assessing Officer are found to yield results inconsistent with the stand of the assessee. As per ld Pr. CIT, the reason for the same is that in such a case, the order would not have been passed in accordance with the law, which should have been done, thus making such assessment order passed not only erroneous but also prejudicial to the interests of Revenue in the matter of proper, detailed, satisfactory and complete inquiries into the assessee's claim that the issue of deductibility u/s 80IC of the Act, viz. whether at 25% or 100%, has already been examined and accepted during the earlier assessment proceedings, and into the consequent matter of arising and bringing to tax any disallowed portions of the deductions claimed u/s 80IC as incomes in the hands of the assessee. The ld Pr. CIT has directed the Jurisdictional Assessing Officer to verify the factual submissions so made by the assessee, and only if found correct and satisfactory, pass the necessary order u/s 143 of the Act dropping the matters in reference. If the contrary scenario of that the assessee's submissions and arguments are unsatisfactory is obtained in the said matter, such matter can be processed by the Jurisdictional Assessing officer for further action of assessment and consequent initiation/imposition of penalty as applicable under the statute. The assessee was granted liberty to adduce the facts as deemed relevant before the JAO in consequence to the impugned order and the JAO was directed to allow the assessee adequate opportunity of being heard and to make relevant submissions, and re-verify the submissions already made.

We therefore have a situation where at the time of passing of the impugned order u/s 263, the ld Pr.CIT on examination of records found prima facie merit in the submissions of the assessee that the order so passed by the Assessing officer is neither erroneous nor prejudicial to the interest of the Revenue. At the same time, ld Pr.CIT is of the opinion that the Jurisdictional Assessing officer should re-verify and re-examine the matter and where the 29 factual verification as so directed yield results inconsistent with the stand of the assessee, the assessment order so passed by the Assessing Officer would be erroneous as well as prejudicial to the interests of Revenue in accordance with the Explanation 2(a) below section 263(1) of the Act.

Section 263 of the Act grants power to the Pr. CIT to call for and examine the record of the proceeding under the Act, and if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The power to initiate revision proceedings can be exercised only if the two conditions are satisfied simultaneously, that is, the order passed by the Assessing Officer must be erroneous; and secondly, the order must be prejudicial to the interests of the Revenue and the ld Pr CIT has to be satisfied of the twin conditions been fulfilled and the satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the Commissioner. It is for the ld Pr.CIT to record his own satisfaction and such a satisfaction has to be in clear and unambiguous terms as to why he is of the opinion that the order so passed by the Assessing officer is erroneous in so far as prejudicial to the interest of the Revenue and such a satisfaction has to be recorded at the time of passing of the revisionary order u/s 263 of the Act. Such formation of opinion and recording of satisfaction cannot be deferred or made subject to or conditional upon subsequent action on part of the Assessing officer. There is no concept of prima facie satisfaction, conditional satisfaction or for that matter, delegated satisfaction for exercise of jurisdiction u/s 263 of the Act as can be seen in the instant case as it is a settled legal proposition that the powers have to be exercised by an authority who is authorized and competent to exercise such powers under the statue and not by any other authority.

As far as the invocation by the Ld. PCIT of Explanation 2(a) to section 263 of the Act is concerned, the Delhi Benches of the Tribunal had an occasion 30 to consider this aspect in the case of Amira Pure Foods Pvt. Ltd Vs. Principal CIT (2017) 51 CCH 0473 (Delhi- Tribunal) wherein, the Delhi Benches, while relying upon the judgement of the Hon'ble Delhi High Court in the case of PCIT Vs. Delhi Airport Metro Express Pvt Ltd (ITA No. 705/2017) has held that Explanation 2 cannot be stated to have overridden the law as interpreted by various High Courts, where the High Courts have held that before reaching the conclusion that the order of the Assessing officer is erroneous and prejudicial to the interest of Revenue, the Commissioner himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. Similarly, the Coordinate Mumbai Benches in the case of Narayan Tatu Rane reported in TS-290-ITAT 2016 (Mumbai) has held that Explanation 2 to section 263 does not provide unfettered right to the ld PCIT to revise each and every order. It was held in the said case that it is the responsibility of the ld PCIT to show that the enquiry or verification conducted by the Assessing officer was not in accordance with the enquires or verification that would have been carried out by a prudent officer and the relevant findings therein read as under: “19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon’ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon’ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd Vs. ITO (1977)(106 ITR 1) that there must be a point of finality in all legal proceedings and the stale issues should not be reactivitated beyond a particular stage and the lapse of time must induce 31 repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”

In the instant case, we find that all the ld Pr. CIT has stated is that the factual matrix being the Assessment Years in which the expansions of the pertinent activities commenced and the legal position in light of the Hon'ble Supreme Court decision in the case of Aarham Softronics (supra) are to be carefully re-examined and re-verified by the Assessing Officer in matter under reference, being the question of proportion of deduction (25% versus 100%) which the assessee can claim u/s 80IC of the Act for the impugned assessment year 2017-18. There is however no discussion or findings by the ld Pr.CIT in respect of the nature of enquiry or verification so carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case in the proceedings so completed u/s 147 r/w 144B of the Act. The Explanation 2(a) to Section 263 doesn’t give such unfettered powers to the ld PCIT and it is the responsibility of the ld PCIT to show that the enquiry or verification conducted by the Assessing officer was not in accordance with the enquires or verification that would have been carried out by a prudent officer in the facts and circumstances of the present case.

Having said that, since the emphasis of the ld. PCIT is on the decision of the Hon’ble Supreme Court in the case of Aarham Softronics (Supra) and its 32 applicability in the instant case, we deem it appropriate to refer to the same. In the said case, the question of law for consideration before the Hon’ble Supreme Court was “Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of Section 80-IC of the Act and starts availing exemption of 100 per cent tax under sub-section (3) of Section 80-IC (which is admissible for five years) can start claiming the exemption at the same rate of 100% beyond the period of five years on the ground that the assessee has now carried out Substantial expansion in its manufacturing unit?”. Referring to the definition of “initial assessment year” and “substantial expansion” and the discussions made thereafter, the Hon’ble Supreme Court affirmed the findings of the Hon’ble High Court wherein the latter has held that the moment substantial expansion is completed, the statutory definition of initial assessment year comes into play and consequently, the assessee becomes entitled to 100% deduction for five years commencing with completion of substantial expansion subject to maximum of total ten years for which deduction is allowed originally as well as on account of substantial expansion. It was held by the Hon’ble Supreme Court that the provisions of Section 80IC were enacted with a view of encouraging enterprises to establish and set up units in States involving hilly areas to make them industrially advance States and where the said objectives are kept in mind, the irresistible conclusion would be to grant 100% deduction of the profits and gains from the year when the substantial expansion is completed. It was held by the Hon’ble Supreme Court that where the substantial expansion involves great deal of investment which has to be at least 50% in the Plant & Machinery of the book value before taking depreciation in any year and where such a expansion is carried out, not only there would be increase in production but generation of more employment as well which would benefit local population. It was held that it is for this reason that even where an existing unit complete substantial expansion, such unit also become entitled to avail the benefit of Section 80IC of the Act and it was held that there is no reason as to why 100% deduction of the profits and gains be not allowed to even those units 33 who had availed this deduction on setting up of a new unit and have now invested huge amount with substantial expansion of those units. In the instant case as well, it is an admitted fact that the substantial expansion was carried out on 31/03/2012 and as on the first day of previous year in which substantial expansion took place, total book value of the Plant and Machinery (before taking depreciation) was Rs. 35,28,074/- which increased by more than 50% to Rs. 82,72,428/- as on 31/03/2012 as per Form No. 10CCB duly submitted by the assessee company for A.Y 2012-13 and a copy thereof has been placed on record. It is further relevant to note that as a result of carrying out the substantial expansion, the total sales of the undertaking which was Rs. 79,83,57,343/- for the F.Y. 2011-12 relevant to A.Y 2012-13 increased to Rs. 141,10,14,347/- for the F.Y. 2012-13 relevant to A.Y 2013-14 as evident from Form No. 10CCB duly submitted by the assessee company for A.Y 2013-14 and a copy thereof has been placed on record. We therefore agree with the submissions of the Ld. AR that the assessee claim of 100% deduction on account of substantial expansion for the impugned assessment year is infact supported by the said decision of the Hon’ble Supreme Court.

Further from the perusal of the record, it is manifestly clear that the case of the assessee was reopened under section 147 for the reason that the assessee has claimed excess claim of deduction under section 80IC @ 100% as against reduced rate of 25% and during the course of reassessment proceeding, the AO issued notices calling for requisite information/documentation, in response, the assessee filed detailed submissions explaining its claim of deduction under section 80IC of the Act. In its submission, the assessee referred to the relevant provision of Section 80IC, the CBDT Circular No. 7/2003 dt. 05/09/2003 wherein the benefit regarding substantial expansion has been explained by the CBDT and the decision of Hon’ble Supreme Court in case of M/s Aarham Softronics and after taking into consideration the explanation and documentation so submitted by the assessee in terms of the Audit Report in Form No. 10CCB and having satisfied himself that the assessee is eligible for 100% deduction for the 34 impugned assessment year i.e. A.Y 2017-18, the AO has not drawn any adverse inference. We therefore find that the matter has been duly enquired into and examined by the AO during the course of reassessment proceedings and the AO did take into consideration the decision of the Hon’ble Supreme Court in case of PCIT Vs. M/s Aarham Softronics and has allowed the claim of deduction so made by the assessee. The Ld. PCIT has merely referred the matter for re- examination and re-verification without pointing out as to how the AO has wrongly applied the legal preposition so laid down by the Hon’ble Supreme Court.

Further, merely the fact that the order so passed is cryptic doesn’t give the jurisdiction to ld PCIT to exercise the jurisdiction u/s 263 as what needs to be seen is the assessment records at the time of examination by the ld PCIT and which speak about the issue of notices, the submissions and documentation so submitted by the assessee which reflect due application of mind by the AO. The assessment order is reflection of conclusion of assessment proceedings and it is an accepted practice that only where an adverse view is taken against the assessee, the basis of arriving at such a adverse view find mention in the assessment/reassessment order which in turn allows the assessee to challenge and avail remedial action as so advised.

In the entirety of facts and circumstances of the case, it is our considered opinion that the Assessing officer, after calling for required information/documentation and after duly considering the explanations and documentation submitted before him, reached a rightful conclusion that the assessee is eligible for claim of 100% deduction u/s 80IC of the Act for the impugned assessment year 2017-18. In our view, such a view is clearly a plausible view which a reasonable and prudent officer could have taken and in absence of any further enquiry conducted by the ld PCIT and merely for the purposes of re-verification and re-examination of claim so allowed, the view so taken and order so passed by the Assessing officer cannot be held to be erroneous in so far as prejudicial to the interest of the Revenue and the exercise of revisional jurisdiction by the Ld. PCIT u/s 2263 cannot be sustained in the eyes