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Income Tax Appellate Tribunal, “G”
Before: SHRI S. RIFAUR RAHMAN, AM & SHRI RAVISH SOOD, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, AM & SHRI RAVISH SOOD, JM आयकरअपीलसं./ I.T.A. No. 1608/Mum/2018 (निर्धारणवर्ा / Assessment Year: 2012-13)
PCIT-3, M/s Syscom Corporation Pvt. Room No. 612, Ltd. 507, 5th floor, A, Sharda बिधम/ Aayakar Bhavan, M. K. Road, Chamber, Plot No. 31, Narsi Vs. Natha Street, Bhat Bazar Masjid, Mumbai-400 020 Chinchbunder, Mumbai-400 009 स्थायीलेखासं./जीआइआरसं./PAN No. AABCS2000C (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant by : Shri Hariom Tulsyan, AR प्रत्यथीकीओरसे/Respondentby : Ms. Sunita Billa, DR सुनवाईकीतारीख/ : 21.11.2019 Date of Hearing घोषणाकीतारीख / : 10.01.2020 Date of Pronouncement आदेश / O R D E R PER S. RIFAUR RAHMAN (ACCOUNTANT MEMBER) The present Appeal has been filed by the assessee against the order of Ld. Pr. Commissioner of Income Tax (Appeals)-3 in short ‘Ld. PCIT(A)’, Mumbai, dated 08.01.18 for AY 2012.
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The brief facts of the case are, assessee filed its return of income for AY 2012 – 13 on 29. 11. 2012 declaring total income at Rs. 22, 87, 54,095/-. The return was selected for scrutiny and assessment was completed under section 143(3) on 26 February 2016 by accepting the returned income filed by the assessee.
Ld. PCIT perused the assessment records, according to him, the assessment order passed by assessing officer appeared to be erroneous and prejudicial to the interests of revenue. Accordingly, he issued show cause notice under section 263 of the Income Tax Act 1961 and served on the assessee. As per the notice PCIT informed the assessee that the assessee has claimed deduction under section 10AA of the Act, by taking eligible profits derived by the undertaking amounting to Rs. 30,50,58,504/- but the above profit inclusive of other non- operating income of Rs. 2,15,49,052/- shown under the head other income as per schedule 15. Since the above said income was not derived from the eligible business /undertaking, the same was required to be excluded from eligible profit for the undertaking. He observed that the deduction under section 10AA
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allowable would be Rs. 8,39,66,452/- as against Rs. 9,03,48,594/-
In response, the assessee filed its reply, for the sake of clarity, it is reproduced below:-
1) The Company has a Special Economic Zone (SEZ) undertaking In Noida which is the sole business of the Company. With regard to the said undertaking, the deduction is claimed under Section 10AA of the Act.
2) In the return of Income for the year under review, the Company has considered the business profit eligible for the purpose of deduction under Section 10AA of the Act.
3) The deduction on eligible business profit under Section 10AA of the Act is computed by dividing the profit of such eligible unit in proportion of export turnover to the total turnover of the undertaking. The business profit of the eligible unit includes operating income to the extent of income derived from manufacturing and integrated activities and non- operating income to the extent of Rental income which is chargeable to tax under other head of income.
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4) As per provisions of section 10AA(7) relating to computation of profits of the eligible unit, the provision states that:
10AA(7) : For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking.
5) A plain reading of the above provision shows that the computation of eligible profit originates from profits of the business of the undertaking as a whole. Thereafter, in order to compute eligible profits, such profits of the undertaking are proportioned to the ratio of export turnover to total turnover. Thus, the provisions of the IT Act are amply clear on apportionment of the entire profit of the undertaking.
6) During the assessment proceedings, the Company has also submitted Form 56F duly verified and certified by an independent Chartered Accountant. The form 56F includes the details of the items which have been considered for computing the deduction under section 10AA of Act. A copy of Form 56F of the
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assessee for AY 2012-13 clearly showing the profits earned by the eligible business of the assessee and duly certified by an independent chartered accountant is enclosed as Annexure 3. The computation of profits derived by the undertaking is enclosed as Annexure 4. A copy of the assessee's audited financial statements for AY 2012-13 are enclosed as Annexure 5.
7) The AO had sought details for claiming exemption u/s. 10AA of the Act vide notice dated 27.10.2015 (copy enclosed as Annexure 6). The assessee had duly disclosed all particulars of its income and expenses including the details of eligible undertaking during the course of assessment proceedings vide submission dated 24.11.2015 before the AO (relevant extract of submission enclosed as Annexure 7).
8) We also wish to place reliance on the following judicial precedents wherein it has been held time and again that if the AO had conducted an enquiry as he deemed fit, then conducting further enquiries cannot be a valid basis for issuance of reassessment u/s. 263:
Commissioner of Income-tax (Central), Ludhiana vs. Max India Ltd. [2008] 166 Taxman 188 (SC)/[2007] 295ITR 282 (SC)/[2007] 213 CTR 266 (SC)
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Commissioner of Income-tax vs. Gabriel India Ltd. [1993] 71 Taxman 585 (Bombay)/[1993] 203 ITR 108 (Bombay)/[1993] 114 CTR 81 (Bombay High Court)
Harihar Housing Agency vs. Commissioner of Income-tax-l, Nagpur [2017] 83 taxmann.com 48 (Nagpur- Trib.) (ITAT Nagpur)
9) Thus, all material facts and documents were available with the AO during the course of assessment proceedings and relevant inquiries made by the AO were duly replied by the assessee. Based on all documents placed on record before the AO, the assessee's assessment proceedings were completed after the satisfaction of the AO u/s. 143(3) of the Act vide order dated 26.02.2016.
10) During the year under consideration, the Company has entered into arrangement with various third parties based in Noida SEZ for rendering services to itself as well as to other companies. The services mainly covered under the arrangement were security management services, administrative services, facility management services, accounting, Information Technology services, other services, etc. which as your goodself is aware, are imperative for the conduct of every business.
7 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd. 11) In order to cross charge the proportionate cost of the aforesaid services which were incurred in relation to the other companies, the Company has entered into cost sharing arrangement. As per the said arrangement, the amount of cost pertaining to other companies were allocated and cross charged to the other companies. The said arrangement was undertaken by the Company in order to avail the benefit of synergy as well as for administrative convenience.
12) While preparing its books of account, the Company has booked the total cost of the maintenance and service charges as expense, while the amount received by the Company under the cost sharing arrangement was disclosed under 'Other non-operating income' in the financial statement. Although such reimbursement has not been considered in the total turnover to compute the deduction u/s. 10AA of the Act. The details of such reimbursement received during AY 2012-13 are enclosed as Annexure 8.
13) In view of the above, it can be said that these maintenance and service charges are not the income of the Company albeit a recovery of the cost of the expenses incurred on behalf other companies. Accordingly, the amount considered while computing
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the eligible business profit pertains to the net of maintenance and service cost incurred by the Company on the various services availed from the third parties for the purpose of business of the SEZ undertaking and thereby, eligible to be considered while computing the business profit of the SEZ undertaking.
14) The Company has just recorded the apportioned cost as its income in the books of accounts rather than netting-off the said amount from the total service and maintenance cost incurred by the Company during the year. This was done from a disclosure purpose; alternately the amount of income could have also been netted off from the total cost to the vendors for the subject services leading to the same amount of net profits under the Act which is eligible for deduction under section 10AA.
15) As per Form 56F, the total turnover of the eligible undertaking is computed as follows: Particulars Amounts (Rs.) Sale of finished goods 4,449,974,225 Sale of traded goods 341,195,392 Sale of softwares 272,631,788 Total 5,06,38,01,405
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16) A perusal of the above shows that the non operating income mentioned in the notice u/s.263 was not included in the computation of total turnover the claiming deduction u/s.10AA of the Act. This further establishes the fact that such other non operating income was in the nature of a reimbursement, whose effect on the profits of the undertaking was embedded in its operations.
17) Hence, there is no reason for revision of assessment u/s. 263 of the Act which had already been duly completed by the AO based on all facts and records and in accordance with the provisions of the Income Tax Act.
A perusal of the above shows that the clear intent of law and legislature is to apportion all profits derived by the eligible undertaking to the percentage of export turnover from specified articles or things. This implies that the entire profit of the undertaking is proportioned in the ratio of its export turnover from specified items to the total turnover of the undertaking. Hence the numerator and denominator of the said formula clearly link themselves to the undertaking as a whole. Hence, without prejudice to our argument that the maintenance and service charges are inter-linked with the assessee's business operations, the assesses rightly
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computed the eligible profits of the undertaking in accordance with provisions of section 10AA(7) of the Act.
After considering the submissions of the assessee, he observed that the claim made by the assessee is under the provisions of section 10AA (7) and in the case relied on by the assessee Krupa trading company’s under the provisions of section 10B(4) of the Act is applicable for 100% EOU, therefore the facts are distinguishable. Further he observed that on careful reading of the section 10 AA (7), only the profits derived from the export of articles or things (including computer software) shall be the amount which bears to the profits of the business of the undertaking, is to be considered and not the amounts under’ other non-operating income’.
Further PCIT considered the challenging of initiating proceedings under section 263 and the contention of the assessee was AO has accepted the submissions made by the assessee and the order cannot be labelled as erroneous is not correct, the PCIT observed that in the present case the assessment records indicate that the assessing officer, during the course of assessment
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proceedings only called for routine details and has not delved into the claim under section 10AA(7) or any other issues thoroughly. The assessing officer accepted assessee’s submission/claim and did not make any further quarries regarding eligible business profits and operating income. By referring to the amendment to section 263 of the Act and expiration to, he held that assessing officer did not make necessary enquiries and verification which should have been made and therefore the order passed under section 143(3) of the Act is erroneous and prejudicial to the interest of revenue which is required to be set aside under section 263 of the Act.
Aggrieved with the above order, assessee preferred an appeal before us raising following grounds of appeal:-
(1) On the facts and in the circumstances of the case and in law, the learned Principal CIT erred in assuming jurisdiction u/s 263 of the Act and setting aside the assessment order passed u/s. 143(3) of the Act by A. O. for deciding the issue as per the directions in the impugned order.
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(2) On the facts and in the circumstances of the case and in law, the learned Principal CIT erred in treating the order of the A. O. under section 143(3) of the Act as erroneous and prejudicial to the interest of Revenue on the ground that the A.O had failed to make necessary inquiries in relation to the deduction claimed by the appellant u/s. 10AA of the Act in the return of income.
(3) On the facts and in the circumstances of the case and in law, the learned Principal CIT erred in treating the order of the A. O. under section 143(3) of the Act as erroneous and prejudicial to the interest of Revenue while ignoring the explanation provided by the appellant that there was no loss of Revenue as far as 'non-operating income' was concerned and thus the very premise for assumption of jurisdiction u/s. 263 of the Act was non-existent.
b. In doing so, on the facts and in the circumstances of the case and in law, learned Principal CIT erred in not dealing with the aforesaid submissions made by the appellant while passing order u/s. 263 of the Act.
(4) On the facts and in the circumstances of the case and in law, the learned Principal CIT erred in treating the order of the A. O. under section 143(3) of the Act as erroneous and prejudicial to the interest of Revenue
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on the ground that the 'non-operating income' was to be excluded from the eligible business profits while calculating deduction u/s. 10AA of the Act by stating that the said income was not derived from eligible business/undertaking and has been shown as 'non operating income' in the Profit & Loss Account.
(5) Without prejudice to the above, on the facts and in the circumstances of the case and in law, the learned Principal CIT erred in holding that the entire 'non- operating income' is to be excluded from eligible business profits and not the profit element embedded in the said income.
(6) The Appellant craves to add, alter or delete all or modify any or all the above grounds of appeal.
Before us, Ld. AR submitted before us a detail written submission, which is reproduced below:-
The appellant has filed the above-mentioned appeal and challenged the order u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'} by the Hon'ble Pr. Commissioner of Income Tax - 3, Mumbai (hereinafter referred to as 'Hon'ble PCIT- 3, Mumbai') wherein the Hon'ble PCIT - 3, Mumbai has held as under:
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a. The income shown under the head 'Non - Operating Income' in the Profit & Loss Account was not derived from the eligible business / undertaking and thus ought to have been excluded from eligible profit of the undertaking and thereafter deduction was to be computed under section 10AA of the Act.
b. The Assessing Officer has not delved into the claim u/s. 10AA(7) of the Act or any other issues deeply/thoroughly. As is evident from the records and the assessment order, there was no direct query made by the Assessing Officer regarding claim u/s. 10AA(7) of the Act. The Assessing Officer accepted the claim of the appellant and did not make further enquiries regarding eligible business profits and operating income.
c. That the Assessing Officer did not make necessary inquiries and verification which should have been made, and therefore making the assessment order u/s. 143(3) of the Act as erroneous and prejudicial to the interests of revenue and is required to be set aside u/s. 263 of the Act for verification of details.
Brief facts of the case
The brief facts of the case are as follows. The appellant is a company engaged in the business of
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value added reseller and manufacture of Smart Cards, SIM Cards and other related activities. The appellant had e-filed it return of income for AY 2012-13 on 29.11.12 declaring total income at Rs. 22,87,54,095/-. The return was selected for scrutiny and notice u/s. 143(2) of the Act was issued to the appellant. The appellant responded to all the queries raised by the Assessing Officer and after considering the details submitted by the appellant, the total income offered by the appellant amounting to Rs. 22,87,54,0957- in the Return of income was accepted as assessed income vide order u/s. 143(3) of the Act dated 26.02.2016 (Page No 35-36 of the Paperbook).
Thereafter, a notice had been issued u/s. 263 of the Act on 11.09.2017 by the Hon'ble PCIT - 3, Mumbai (Page No 37 of the Paperbook).The relevant extract of the said notice is reproduced hereunder for ready reference:
"In this case for A. Y. 2012-13, assessment was completed u/s. 143(3) of the I. T. Act, 1961 on 26.02.2016 determining total income at Rs. 22,87,54,0951-.
On verification, certain discrepancies were found in the assessment order dated 26.12.2016 -which are as under:
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A perusal of the records revealed that the assessee has computed profits derived by the undertaking eligible for deduction u/s. 10AA of the Income Tax Act, 1961 amounting to Rs. 30,50,58,504 after excluding income from other sources. It is further noticed that while computing the eligible profits for deduction, the assessee has not excluded other non-operating income of Rs. 2,15,49,052 shown under the head of Other Income (Schedule - 15). Since, said income was not derived from the eligible business/undertaking and has been shown as non-operating income in P & L A/c, the same was required to be excluded from eligible profit of the undertaking and the resultant amount should have been allowed as deduction u/s. 10AA of the Income Tax Act, 1961. The same will result in determination of profits from eligible business at Rs. 28,35,09,452 (i.e. 30,50,58,504 - 2,15,49,052) and deduction u/s 10AA allowable would workouttoRs. 8,39,66,452 (50% of 28,35,09,452 X 2,99,94,72,754 / 5,06,38,01,405) as against Rs. 9,03,48,594 allowed by the department.
In view of the above, the assessment order passed u/s. 143(3) passed on 26-02-2016 appears to be erroneous and prejudicial to the interest of Revenue and it is evident that the Assessing Officer has committed the lapse of not applying his mind to the
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issues discussed above. I, therefore, propose to pass such order thereon as the circumstance of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing afresh assessment under the provisions of section 263. "
From a perusal of the above, it is clear that the Hon'ble PCIT - 3, Mumbai has stated that the appellant did not exclude other non-operating income of Rs. 2,15,49,052 under the heading 'Other Income' as was reflecting in the Profit & Loss Account while computing the eligible profits for deduction u/s. 10AA of the Act. It was further stated that the said income was not derived from the eligible business/ undertaking and has been shown as non-operating income in P&L A/c, the same was required to be excluded from eligible profit of the undertaking and the resultant amount should have been allowed as deduction u/s 10AA of the Act. Further, the approach of excluding other non- operating income from eligible profit will result in determination of profits from eligible business at Rs. 28,35,09,4527- and deduction u/s 10AA allowable would work out to Rs. 8,39,66,452 as against Rs. 9,03,48,594 allowed by the Department.
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Before the Hon'ble PCIT - 3, Mumbai, the appellant made the following submissions:
i. The Assessing Officer had during the course of assessment proceedings conducted relevant enquiries for the subject matter and based on the documents submitted on record, had satisfied himself and allowed the claim of deduction of the appellant,
ii. The amount of Rs. 2,15,49,0527- shown as 'non-operating income' by the appellant is in the nature of reimbursement of expenditure for which the appellant company had entered into cost sharing arrangement with various parties. Further the effect of the non-operating income on the profits of the undertaking was embedded in its operations,
iii. Without prejudice to the above, even if the reimbursement is considered to be not linked to manufacturing activities, then the appropriate deduction would be that of only the profit derived from such maintenance and service charges reimbursement and not the gross income earned therefrom.
Despite the submissions made by the appellant and the details submitted, the Hon'ble PCIT-3, Mumbai passed an order u/s. 263 of the Act holding that the Assessing Officer did not make necessary inquiries and
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verification and therefore the assessment order u/s. 143(3) dated 26.02.2016 erroneous and prejudicial to the revenue and set aside the same u/s. 263 of the Act for verification of details.
It is pertinent to mention here that the appellant is a company engaged in the business of Value added reseller and manufacturer of Smart Cards, SIM Cards and other related activities. It has a Special Economic Zone (SEZ) undertaking in Noida which is the sole business of the appellant company. With regard to the said undertaking, the deduction is claimed under Section 10AA of the Act. The appellant had e-filed its return of income for the assessment year under consideration on 29.11.2012 declaring total income at Rs. 22,87,54,095/-. The return was selected for scrutiny and accordingly, a notice u/s. 143(2) of the Act was issued on the appellant. After calling for details and hearings, an assessment order was passed u/s. 143(3) of the Act dated 26.02.2016 (Page No 35-36 of the Paperbook), wherein the Assessing Officer accepted the returned income as the assessed income.
Inquiry conducted during the course of original assessment proceedings;
It is the first and foremost submission of the appellant that the Assessing Officer had during the
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course of assessment proceedings made inquiries pertaining to claim of exemption u/s. 10AA of the Act. The Assessing Officer sought details for claiming exemption u/s 10AA of the Act vide notice dated 27.10.2015 (Page No 38-39 of the Paperbook), wherein the Assessing Officer stated as under:
"1) Please furnish complete details and supporting evidences along with a note justifying your claim for exemption u/s. 10AA of the Income Tax Act, 1961. "
Before the Assessing Officer, the appellant vide letter dated 24.11.2015 (page no. 41 of the paper book) submitted a detailed note on the exemption claimed u/s 10AA of the Act, the relevant portion is reproduced hereunder:-
"Syscom Corporation Limited is engaged in the business of manufacturing of SIM Card and Smart Card and operating from Noida Special Economic Zone, Noida-201305, Uttar Pradesh, India. The company had set up its manufacturing facilities at Plot No. 60-61, Noida Special Economic Zone (NSEZ), Phase-II, Dadri Road, Noida-201305, Uttar Pradesh and started manufacturing from NSEZ in the financial year 2006-07. The company had duly complied with the applicable provisions of Special Economic Zone Act, 2005 for setting up of its manufacturing unit at
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Noida Special Economic Zone. The NSEZ authority had issued LOA to Syscom for setting up of manufacturing unit in Noida Special Economic Zone , vide their letter number 03/06/2006-Proj/9539 dated 13 July 2006. The copy of NSEZ approval letter (LOA) is enclosed as Annexure-I. Further the copy of NSEZ allotment letter for Plot No. 60-61, Noida Special Economic Zone (NSEZ), Phase-II, Dadri Road, Noida- 201305, Uttar Pradesh is enclosed as Annexure-H. The company has been carrying its business activities wholly from its unit/s located in NSEZ and does not have any other manufacturing unit.
The company has obtained Form 56F for the assessment year 2012-13 duly certified by the chartered accountant containing the requisite details of computation of exemption under section 10AA of the Income Tax Act, 1961 which is enclosed as Annexure- III. "
From a perusal of the above, it is clear that the appellant had submitted details pertaining to its unit at Special Economic Zone, Nodia before the Assessing Officer. It was submitted that the appellant had duly complied with the applicable provisions of Special Economic Zone Act, 2005 for setting up of its manufacturing unit at Noida Special Economic Zone. It
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has submitted approval letter from the Noida Special Economic Zone (NSEZ) dated 13.07.2006 (Page No 42 of the Paperbook).The appellant submitted the copy of NSEZ allotment letter for Plot No. 60-61, Noida Special Economic Zone (NSEZ), Phase-II, Dadri Road, Noida-201305, Uttar Pradesh (Page No 43-44 of the Paperbook). It has also submitted Form 56F for AY 2012-13 (Page No 45-47 of the Paperbook), duly verified and certified by a Chartered Accountant which clearly reflects the profits earned by the eligible business of the appellant. The Form 56F includes the details of the items which have been considered for computing the deduction under Section 10AA of Act. The appellant had thus disclosed all particulars of its income and expenses including the details of eligible undertaking during the course of assessment proceedings vide submission dated 24.11.2015 before the AO (Page No40-47 of the Paperbook). The appellant company had therefore duly disclosed all particulars of its income and expenses including the details of eligible undertaking during the course of assessment proceedings vide submission dated 24.11.2015 before the AO.
Thus, all material facts and documents were available with the Assessing Officer during the course of assessment proceedings and relevant inquiries made
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by the Assessing Officer were duly replied by the appellant. Based on all documents placed on record before the Assessing Officer, the appellant's assessment proceedings were completed after the satisfaction of the Assessing Officer u/s 143(3) of the Act vide order dated 26.02.2016.
It is trite law that if the Assessing Officer had conducted an enquiry as he deemed fit, then conducting further enquiries cannot be a valid basis for issuance of re-assessment u/s 263. It has to be kept in mind that there is a distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act merely because he has a different opinion in the matter. It is only in a case of lack of inquiry that recourse to action u/s. 263 of the Act is to be made. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well- accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and lapse of time must induce repose in and set at rest
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judicial and quasi-judicial controversies as it must in other spheres of human activity.
Reliance for the above contention is placed on the following judicial pronouncements:
i. Judgement of Hon'ble Bombay High Court in the case of Commissioner to Income-tax vs. Nirav Modi reported at (2017) 390 ITR 292 (Bombay) (Page No. 50-60 of the Paperbook), wherein the Hon'ble High Court had held as under:
"6. It is a settled position in law that powers under s. 263 of the Act can be exercised by the CIT on satisfaction of twin conditions viz. the assessment order should be erroneous and prejudicial to the Revenue. By erroneous is meant contrary to law. Thus, this power cannot be exercised unless the CIT is able to establish that the order of the AO is erroneous and prejudicial to the Revenue. Thus where there are two possible views and the AO has taken one of the possible views, no occasion to exercise powers of revision, can arise. Nor can revisional power be exercised for directing a fuller inquiry to find out if the view taken is erroneous, when a view has already been taken after inquiry. This power of revision can be exercised only where no inquiry as required under the
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law is done. It is not open to enquire in cases of inadequate inquiry.
Firstly, the Revenue contends that the exercise of powers under s. 263 of the Act is justified as in this case, as no inquiry in respect of the gifts received during the subject years was done by the AO for the assessment orders for asst. yrs. 2007-08 and 2008-09. This according to the Revenue is evident from the assessment orders dt. 31st Dec., 2009 and 30th Dec., 2010 which does not even make a mention of the gifts received much less discuss and/or deal with the same. This issue is no longer res Integra as this Court in Idea Cellular Ltd. vs. Dy. CIT (2008) 215 CTR (Bom) 288 : (2008) 3 DTR (Bom) 179 : (2008) 301 ITR 407 (Bom) has held that if during assessment proceedings queries were raised and the assessee responded to the same, then even if an assessment order does not mention the same, it does not mean that the AO has not applied his mind to the issues. It would be well nigh impossible for an AO to complete all assessments assigned to him under s. 143(3) of the Act if he is required to deal with all issues which arose during the assessment proceedings. Thus, the assessment order primarily deal with only those issues in respect of which the assessee has not been able to satisfy him and give reasons for his conclusion. This would enable the assessee to
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challenge the same, if aggrieved. In fact the Gujarat High Court in CIT vs. Nirma Chemicals Works (P) Ltd. (2009) 222 CTR (Guj) 593 : (2009) 20 DTR (Guj) 80 : (2009) 309 ITR 67 (Guj) has observed that if an assessment order were to incorporate the reasons for upholding the claim made by an asseseee, the result would be an epic tome and not an assessment order. In this case, during the assessment proceedings for both the assessment years, the AO issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The respondent assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their bank accounts. On perusal, the AO was satisfied about the identities of the donors, the source from where these funds have come and also the creditworthiness/'capacity of the donor. Once the AO was satisfied with regard to the same, there was no further requirement on the part of the AO to disclose his satisfaction in the assessment order passed thereon. Thus, this objection on the part of the Revenue, cannot be accepted.
It was next submitted that no enquiry was done by the AO to find out whether the donor Mr. Deepak Modi (father) had received money from M/s Chang Jiang as
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claimed. Nor any inquiry was done to find out whether the sister had in fact earned amounts on account of Foreign Exchange Transactions as claimed by her. We find that this enquiry of a source of source is not the requirement of law. Once the AO is satisfied with the explanation offered on inquiry, it is not open to the CIT in exercise of his revsional powers to direct that further enquiry has to be done. At the very highest, the case of the Revenue is that this is a case of inadequate inquiry and not of "no enquiry." It is well-settled that the jurisdiction under s. 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. This view has been taken by this Court in the matter of CIT vs. Shreepati Holdings & Finance (?) Ltd., unreported (IT Appeal No. 1879 of 2013, dt. 5th Oct., 2013), by the Delhi High Court in CIT vs. Vikas Polymers (2010) 236 CTR (Del) 476 : (2010) 47 DTR (Del) 348 : (2012) 341 ITR 537 (Del) and in DG Housing Projects (supra). In fact the Delhi High Court in DG Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under s. 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under s. 263 of
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the Act. Thus, this objection on the part of the Revenue, is also not sustainable.
The Revenue placed reliance upon the decision of the Delhi High Court in DG Housing Projects Ltd. (supra) that as the AO had not enquired into the source of the source of the gifts received by the assessee, the assessment order is erroneous. The aforesaid decision holds that the power of revision under s. 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the AO, the order of the AO could be erroneous in two classes of situation. The first class would be where orders passed by the AO are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the AO and that is not done. In the second class of cases, where the order is not ex facie erroneous, then the CIT must himself conduct an enquiry and determine it to be so. The Court held that it is not permissible to the CIT while exercising power under s. 263 of the Act to remit the issue to the AO to re-examine the same and find out whether earlier order of assessment is erroneous. It is the CIT who must hold that the order is erroneous, duly supported by reasons. In the present facts, the CIT in exercise of its powers
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under s. 263 of the Act has merely restored the assessment to the AO to decide whether the gifts were genuine and, if not, then the assessment could be completed on application of s. 68 of the Act. In this case, the order passed by the AO is not per se erroneous and further the CIT has not given any reasons to conclude that the order is erroneous. In fact, he directs the AO to find out whether the order is erroneous by making further enquiry. This the decision of the Delhi High Court in DG Housing Projects Ltd. (supra), clearly negates. In the above view, the decision of Delhi High Curt in DG Housing Projects Ltd. (supra) would not assist the Revenue in the present facts. "
ii. Judgement ofHon 'ble Bombay High Court in the case of Commissioner to Income-tax vs. Gabriel India reported at (1993) 203 ITR 108 (Bombay) (Page No. 61-70 of the Paperbook), wherein the Hon'ble High Court had held as under:
"15. We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part
30 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd. of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter. That, in our opinion, is not permissible. Further, inquiry and/or fresh determination can be directed by the Commissioner only after coming to a conclusion that the earlier finding of the ITO was erroneous and prejudicial to the interest of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal disapproved his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal. "
iii. Judgement of Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. reported at (2011) 332 ITR 167 (Delhi), wherein the Ron 'ble High Court
31 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd. following the Hon'ble Jurisdictional High Court (Page No. 71-88 of the Paperbook) in the case of Gabrial India Ltd. (supra)hdd as under:
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry"
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and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open."
Further reliance is placed on the order passed by Hon'ble Income Tax Appellate Tribunal Nagpur Bench in the case of Harihar Housing Agency vs. Commissioner of Income-tax-I, Nagpur reported at (2015) 134 DTK 0107 (ITAT Nagpur), (Page No. 89- 94 of the Paperbook) wherein the Hon'ble Nagpur Tribunal has held as under:
"10. Upon careful consideration as regards the merits of assessee's claim u/s 80IB is concerned, we find that in our order of even date in the case of the assessee for the assessment years 2003-04 to 2008-09 which includes the present assessment year, we have upheld the order of learned CIT(Appeals). In the said order learned CIT(Appeals) held that the assessee fulfils all the conditions laid down u/s 80IB(10) of the I. T. Act.
Further more we note that the AO has made the necessary enquiry by issuing questionnaire to the assessee and obtaining the details as he desired necessary. Now the learned CIT was of the opinion
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that the details obtained by the assessee were not sufficient. In our considered opinion this approach of the learned CIT in invoking the jurisdiction u/s 263 of the I.T. Act is not sustainable. The AO has made the enquiry which he deemed fit. Now the learned CIT is directing to make further enquiry. This, in our considered opinion, is not the mandate of section 263 of the I.T. Act. Further more learned CIT has also drawn adverse inference on the issue that capital introduced by the partners were not looked into by the AO in the assessment stage. We find that this alone cannot be a ground for invoking jurisdiction u/s 263 of the I.T. Act. Learned CIT has noted that the assessee has submitted necessary details before him. Learned CIT has not found any thing adverse in these details. Moreover there are case laws for the proposition that capital introduced by the partners has to be examined in the hands of partners in their individual account. Hence the AO having adopted one of the possible views, it cannot be said that the learned CIT was justified in invoking jurisdiction u/s 263 of the IT. Act.
In this regard we draw support from the decision of Hon'ble Apex Court in the case of Max India Ltd. 295 ITR 282. In this case it was expounded that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as
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erroneous order prejudicial to the interest of the Revenue unless the view taken by the ITO is unsustainable in law.
From the adjudication on merits of this case as mentioned in para 10 above, the view adopted by the AO was quite sustainable in law. Hence the jurisdiction assumed by the learned CIT is not legal.
Further more we find that Hon'ble jurisdictional High Court in the case of CIT vs. Gabrial India Ltd. 203 ITR 108 has expounded that in order to exercise jurisdiction u/s 263 Commissioner must have material to prima facie come to the conclusion that the order of the ITO is erroneous as also prejudicial to the interest of Revenue. In the present case we find that there is no prima facie material before the learned CIT. He is only expecting that further enquiry may result in an order which may in favour of the Revenue. Hence the material before the learned CIT does not warrant a view that the order of the AO is erroneous as also prejudicial to the interest of the Revenue."
In the present case, the Assessing Officer had undertaken the exercise of examining the deduction claimed under section 10AA of the Act. The Assessing Officer elicited replies and since he was satisfied with the explanation, he accepted the same and thereafter
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passed the assessment order. The grievance of the Commissioner is that the Assessing Officer should have made further inquiries. Therefore, it is not the case of the Ld. Commissioner that there was no inquiry or lack of inquiry by the Assessing Officer but that there should have been further inquiries made in the said matter. Thus, the order passed u/s. 263 of the Act is illegal and without jurisdiction.
It is further submitted that during the year under consideration, the assessee company had entered into arrangement with various third parties based in Noida SEZ for rendering services to itself as well as to other companies. The services mainly covered under the arrangement were security management services, administrative services, facility management services, accounting, Information Technology services, other services, etc. which are imperative for the conduct of every business.
The assessee has incurred costs on behalf of itself and other companies and has received reimbursement for the same. The proportionate costs incurred were allotted to the said other companies. While preparing its financial statements, the assessee company had booked the total cost of the maintenance and service charges as an 'expense' separately, while the
36 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd. reimbursement received by the appellant company under the cost sharing arrangement was disclosed under 'Other non-operating income'. The chart showing details of such reimbursement received during AY 2012-13 are enclosed as Page No. 48 of the Paperbook.
From a perusal of the aforesaid chart it is clear that the assessee company has received Rs. 2,15,49,0527-being reimbursement of various expenses in the nature of logistic / facility management charges, security management charges, administrative charges, service charges relating to IT etc. The assessee company has shown the reimbursement received under the head 'Non-operating income' and the corresponding expenses are booked under respective heads. The assessee company has shown the reimbursement separately instead of netting the said amount off from the cost incurred by the assessee company for disclosure purposes.
The word 'Reimbursement/Reimburse' (Page No. 149-151 of the Paperbook) has been defined as under: i. In Black's Law Dictionary Eighth Edition as '1. Repayment 2. Indemnification.
ii. In Mitra's Legal and Commercial Dictionary as 'Indemnification, paying back;
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recompense, refund, reparation, repayment; replacement; restitution; restoration'.
iii. In Oxford Dictionary Thesaurus and Wordpower Guide First Indian Edition 2007 as 'repay (money) to (a person who has spent or lost it)'.
From the various definitions reproduced hereinabove, it is clear that reimbursement is repayment or indemnification of money etc. to a person who has spent it or lost it and is in not a form of income. Therefore, the reimbursement received is not income of the assessee and are only recovery of expenditure made on behalf of third parties and will not have any impact on the profitability of the assessee company. The aforesaid contention can be explained through an illustration as under:
a. Profit of assessee company when no expenditure is incurred for third party and no reimbursement is received for the same: Sr. No. Particulars Amount Amount (Rs.) (Rs.) 1. Turnover of Assessee Company 1000 2. Reimbursement Received from Nil Third Parties 3. Total Turnover 1000 4. Expenditure Incurred for Assessee 900
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Company 5. Expenditure Incurred for Third Nil 900 Parties 6. Profit of the Assessee Company 100
b. Profit of assessee company when expenditure is incurred for third party and reimbursement is received for the same: Sr. No. Particulars Amount Amount (Rs.) (Rs.) 1. Turnover of Assessee Company 1000 2. Reimbursement Received from 50 Third Parties 3. Total Turnover 1050 4. Expenditure Incurred for Assessee 900 Company 5. Expenditure Incurred for Third 50 950 Parties 6. Profit of the Assessee Company 100 22. From a perusal of the above illustration it is clear that the profit of the assessee company remains the same in a situation where it incurs expenditure for third party and reimbursed for the same or not. Thus, the receipt of reimbursement do not have an impact on the profits of the assessee company and therefore exclusion of the same from the eligible profits while calculating deduction u/s. 10AA(7) of the Act is not justified and wholly unwarranted.
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Without prejudice to the above, it is submitted that even if the reimbursement income is considered as separate activity, reimbursements of expenditure being interlinked to the manufacturing activity is an eligible activity and all the profits of the undertaking are to be considered for calculating the deduction/exemption. Accordingly, the amount considered while computing the eligible business profit pertains to the net of maintenance and service cost incurred by the assessee company on the various services availed from third parties for the purpose of business of the SEZ undertaking and thereby, eligible to be considered while computing the business profit of the SEZ undertaking.
The appellant company had just recorded the apportioned cost as its income in the books of accounts rather than netting-off the said amount from the total service and maintenance cost incurred by the appellant company during the year. This was done for disclosure purpose; alternately the amount of income could have also been netted off from the total cost to the vendors for the subject services leading to the same amount of net profits under the Act which is eligible for deduction under section 10AA of the Act.
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It is submitted that such activities are operating in nature, costs relating to maintenance and service activities are not separately identifiable as they are interlinked and integrated in the manufacturing activities. The reimbursement received by the assessee company of maintenance and service charges which were integral activities for the purpose of its business operations should not be excluded for computing the eligible profits from the undertaking.
It is pertinent to refer to the provision of section 10AA(7) of the Act, which is as under:
"(7) For the purposes of sub-section (1), the profits derived from the export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to the total turnover of the business carried on by the undertaking."
From a perusal of the afore-mentioned section it is clear all profits derived by the eligible undertaking are to be apportioned to the percentage of export turnover from specified articles or things. This implies that the entire profit of the undertaking is proportioned in the ratio of its export turnover from specified items to the
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total turnover of the undertaking. Hence, without prejudice to our argument that the maintenance service charges are inter-linked with the appellant company's business operations, the appellant company rightly computed the eligible profits of the undertaking in accordance with provisions of section 10AA(7) of the Act. In this regard, reliance is placed on the order of Hon'ble Jurisdictional Mumbai ITAT in the case of Krupa Trading Company vs. Additional Commissioner of Income-tax, 15(1), Mumbai (ITA Nos. 8591 (Mum.) of 2010 and 7700 (Mum.) of 2012 (Page No. 95-98 of the Paperbook) wherein the Hon'ble Tribunal has dealt with the provisions of section 10B(4) of the Act. It is pertinent to mention here that the provisions of section 10AA(7) of the Act and 10B(4) of the Act are identical in all respects. A perusal of the section 10AA(7) of the Act, which is reproduced hereinabove, would clarify that the deduction for newly established units in Special Economic Zones has to be calculated by considering the profits of the business of the undertaking in proportion to the export turnover bears to total turnover of the business undertaking. Similarly, the provisions of section 10B(4) of the Act pertain to the deduction for newly established units hundred percent export-oriented undertakings is to be calculated by considering the profits of the business of
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the undertaking in proportion to the export turnover bears to total turnover of the business undertaking. The relevant provisions of section 10B(4) of the Act are reproduced hereunder for ready reference:
"(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking."
Therefore finding in cases where deduction under section 10B(4) of the Act is considered is equally applicable in the case of the assessee wherein the issue is regarding deduction under section 10AA(7) of the Act..
In the said decision, the taxpayer was engaged in the business of export of articles and claimed deduction/ u/s 10B. During the year under appeal, the taxpayer included income by way of reimbursement of Central/ Sales Tax (CST) interest earned on term deposits and, interest earned on deposits with Gujarat Electricity v Board in its total income while computing the eligible profits. The AO disallowed the claim of deduction u/s
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10B with respect to the aforesaid three elements of income on the ground that such incomes do not constitute a first degree profit of the 100% EOU. On appeal, the Hon'ble Mumbai ITAT held that the provisions of section 10B(4) are very clear and specific towards apportionment of entire profits of the business of the undertaking is to be determined, in the ratio of export turnover to total turnover of business in order to arrive at 'profits derived from export' for the purposes of sub-section 10B(1). It was also held that the schematic mechanism of section 10B especially a joint reading of sub-section (1) and sub-section (4) show that there is no requirement for the appellant company to establish a direct nexus with the business of the undertaking so long as the relevant income forms part of the business of the undertaking. Thus, such reimbursements received by the taxpayer were not to be excluded for computing the eligible profits for deduction.
The relevant portion of the order passed by the Hon'ble Tribunal is as under:
"7. We have carefully considered the rival submissions. Pertinently, the rival stands are similar on all the three issues relating to the denial of deduction under section 10B of the Act. The claim of the assessee is with
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respect of the profits and gains of 100% EOU, which is engaged in the business of export articles. It is quite clear from a reading of section 10B(1) of the Act that the said section envisages deduction in respect of profits and gains as are derived by 100% export oriented undertaking from the export of articles or things or computer software. For the present purpose, we are concerned with a 100% EOU engaged in the export of article or things. Sub-section (4) of section 10B of the Act provides a mechanism in terms of which the 'profits derived from export' of articles is to be computed for the purposes of sub- section(l) of the Act. In terms of sub-section(4) of the Act, the entire profits of the business of the undertaking is to be determined, which is required to be apportioned in the ratio of export turnover to total turnover of business in order to arrive at 'profits derived from export' for the purposes of sub-section 10B(1) of the Act. Considering the aforesaid specific provision, the Special Bench of the Tribunal in the case of Moral Overseas Ltd. (supra) held that once an income forms part of the business of the eligible undertaking, there is no further mandate in section 10B of the Act to exclude it from the profits eligible for deduction. Quite clearly, the schematic mechanism of section 10B of the Act, especially a joint reading of sub-section (1) and sub-section(4) would
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show that there is no requirement for the assessee to establish a direct nexus with the business of the undertaking so long as the relevant income forms part of the business of the undertaking . In the present case, the assessment order itself reveals that the refund of Rs. 2,59,903/- on account of CST has been assessed as a part of the business income of the 100% EOU. Similar is the situation with regard to the interest income of Rs.68,677/- earned on term deposit with the bank and interest of Rs.47,441/-earned on deposit with Gujarat Electricity Board. Under these circumstances and considering the legal position, we find that the claim of the assessee for deduction u/s. 10B of the Act is quite justified. In fact, the judgment of the Hon'ble Karnataka High Court in the case of Motrola India Electronics (P) Ltd(supra) is directly on the point of allowability of deduction under section 10B of the Act in relation to interest income earned from inter- corporate loans. The Hon'ble High Court has considered the definition of profits derived from export' contained in sub- section (4) of section 10B of the Act and held that the said income was eligible for deduction contemplated under section 10B(1) of the Act. Considered in the said light, in our view, the assessee has so succeed in Grounds of appeal No. 1,2 & 3. "
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It is important to note that the above decision of Hon'ble Jurisdictional Tribunal has not been appealed against by the Revenue authorities, hence the findings of Hon'ble Mumbai Tribunal have attained finality. Since the facts of the above case are very similar to the case of the appellant company, it is submitted that the reimbursements received by the appellant company towards service and maintenance costs do not need to be excluded for the purpose of computing the eligible profits for deduction.
Reliance is also placed on the decision of Hon'ble Indore Tribunal Special Bench in the case of Maral Overseas Ltd. v. AddL CIT [2012] 16 ITR (Trib.) 565 (Indore) (SB), (Page No 99-148 of the Paperbook). The relevant extracts of the said decision is as follows:
"It is clear from the plain reading of section 10B(1) of the Act that the said section allows deduction in respect of profits and gains as are derived by a 100% EOU. Further, section 10B(4) of the Act stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub- section (4) of section 10B of the Act mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total
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turnover. Thus, even though sub-section (1) of section JOB refers to profits and gains as are derived by a 100% EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction u/s 10B of the Act. We cannot ignore sub-section (4) of section JOB which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business.
Thus, sub-section (4) of section JOB stipulated that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, not-with-standing the fact that sub- section (1) of section JOB refers the profits and gains as are derived by a 100% EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section JOB of the Act. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business. Sub-section (4) does not require an assessee
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to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits."
We also wish to place reliance on the decision of Hon'ble Karnataka High Court in the case of CIT vs. Flowserve Microfinish Valves (P.) Ltd. [2012] 204 Taxman 133 (Kar.), wherein the refund of Central Sales Tax received by the taxpayer was held to be included in the total turnover for the purpose of computing the eligible profits.
In light of the above submissions, the order passed u/s. 263 of the Act recalling the order passed by Assessing Officer being against the express provisions of law deserves to be quashed.
On the other hand, Ld DR submitted that the relevant enquiries were not made by the assessing officer and he submitted that as per the amended provision and explanation to
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the section 263 made it very clear that assessing officer when failed to make enquiry or verification is erroneous and further he submitted that assessing officer has issued notices to collect the information and makes only routine enquiry. And in response to the show cause notice, assessee has given only brief note on the deduction. From the information submitted by the assessee it is not clear how the assessee is claiming deduction. In support of the 263 order, learned DR relies on the following decision:-
i) Shoreline Hotel Pvt. Ltd. Vrs. CIT (2018) 98 taxmann.com 234 (Bom), wherein it was held as under:-
Once it is found that in this case there is no any substitution of the views of the Assessing Officer, but there a clear failure to abide by the statutory mandate and by making an estimate so also accepting a vague general explanation of the assessee, the assessment has been made, then, it will undoubtedly be erroneous insofar it is prejudicial to the interest of the revenue. It is erroneous insofar as the same is prejudicial to interest of the revenue because the Assessing Officer has failed to carry out his statutory obligation and failed to discharge it by holding further probe and
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inquiry. More so, when the assessee virtually has answer to his notice. Secondly, very reliable and genuine information was received from the VAT and Sales Tax Authorities with regard to the operations with these dealers styled as 'hawala traders'. This certainly bro the matter within the purview of section 263. No error of law or perversity is committed either by" Commissioner or the Tribunal and their order had not raised any substantial question of law.
ii) PCIT vrs. Venus Wollen Mills, (2019) 105 taxmann.com 287 (P & H), wherein it was held as under:-
The powers of Commissioner under section 263 are very wide. The only limitation on his power is that must have some material which would enable him to form a prima facie opinion that the order passed by the officer was erroneous in so far as it is prejudicial to the interests of the revenue. Once he conclude the basis of the material that the order of the Assessing Officer was erroneous and prejudicial to interests of the revenue, the Commissioner is empowered to pass an order as the circumstances of the may warrant. He may pass an order enhancing the assessment or he may modify the
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assessment. PCIT also empowered to cancel the assessment and direct a fresh assessment. The Commissioner is competent to adopt any one of the three causes indicated by the said provision.
ii) Babulal S. Solanki Vrs. ITO (2019) 104 taxmann.com 155 (Ahd. Trib), wherein it was held as under:-
Assessee explained that the Assessing Officer had specifically looked into the matter of application section 50C, and it was after due verification of records and evidences called for that the assessment c in question was passed. In more specific terms, the Commissioner's attention was drawn to the letter d 9- 12-2013 passed by the Assessing Officer, and assessee's reply thereto, and the claim of the assessee allowed after duly considering stand on the assessee on the impact of stamp duty valuation rate, on transaction, under section 50C. The Commissioner, however, was not satisfied. He was of the view the letter issued by the Assessing Officer was a general letter and that there was no specific mention it assessment order as to why sale consideration is accepted and the stamp duty value is not adopted as
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consideration under section 50C. The commissioner thus treated the order as erroneous and prejudicial to the interest of the revenue.
On merit, he submitted that the case law relied by the assessee is on section 10B(4) whereas assessee’s case falls on 10AA, therefore, it is not applicable. Further he submitted that assessee’s business model is different and what is necessary for entering into other projects which is not relating to the main objective of the business.
Considered the rival submissions and material placed on record, we notice from the findings of the learned PCIT that assessing officer has collected the information from the assessee on routine basis and has not verified the exemptions claimed by the assessee under section 10AA. We also noticed that the assessment record passed by assessing officer is cryptic and he has not discussed the allowability of the exemption under section 10AA. It is a fact that assessee has submitted a relevant information before assessing officer, however the PCIT has not noticed any enquiry or verification made by the assessing officer in the assessment record. Merely there are certain information is
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available on assessment record, it does not mean that assessing officer has carried out proper verification. As per the amended provision of section 263 of the Act, when the assessing officer does not carried out any verification then the provision of section 263 of the Act can be initiated. Therefore, we are in agreement with the learned DR that assessing officer has not verified the relevant information submitted by the assessee therefore in our considered view the assessment order may be erroneous.
The next question is whether the assessment order is also prejudicial to the interest of the revenue.
We notice that the assessee relied on the decision of Krupa Trading case (supra), as per which the Hon’ble Court have held that the profit derived from export of articles or things or computer software shall be allowed which bears to the total profits of the business of the undertaking in proportion to the export turnover in respect of the article exported bears to the total turnover. Which means the assessee can claim exemption on the profit of the undertaking in proportion to the export turnover. The Ld PCIT rejected the submission of the assessee that this case
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refers to exemption u/s 10B which is 100% export unit and the above decision will not apply to the units u/s 10AA.
When we compared the section 10B(4) and section 10AA(7), both the sections are identical, for the sake of clarity, it is reproduced below:
Section 10B(4) of the Act. For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Section 10AA(7) of the Act
For the purposes of sub-section (1), the profits derived from export of articles or things or services (including computer software) shall be the amount which bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export turnover in respect of such articles or things or services bears to
55 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd.
the total turnover of the business carried on by the undertaking.
The legislature intend to give benefits to the units performing specified activities in order to development of industry or development of the specific area. The intention is to encourage the special category units in the special economic zones, which may be to encourage export, trade etc. Since both these sections are in the same chapter of the income tax, the language used is same in both the sections. Therefore, the ratio of the decision will equally applicable to section 10AA also. Hence, the submission of the assessee is valid and accordingly, in our considered view, the assessment order may be erroneous but not prejudicial to interest of revenue.
On merit, we find that assessee has submitted details of other income which includes reimbursement of expenditure and write back of bad debs claim in the earlier year. From the records we notice that assessee has declared maintenance charges received from M/s Inlays India Private Limited, service charges received from M/s Popular carts technology Private Limited, which are in the nature of reimbursement of expenditure. The
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assessee has incurred the expenditure and recorded the same in its books of account including the expenditure incurred for M/s Inlays India Private Limited and M/s Popular carts technology Private Limited and claimed the reimbursement from them and credited the same as other income. We are in agreement with the submissions of the Ld. AR that the above reimbursement of expenditure has no impact on the profit declared by the assessee, whether it is declared as other income or it is reduced from the total expenditure and the net result will be nil.
With regard to bad debs written off by the assessee in the earlier years which assessee has recovered this year to the extent of Rs. 13,02,708/-. The assessee has shown the recovery of bad debs as other income and treated the same as income from business. We are in agreement with the treatment of the above income as income from business, since the assessee has claimed bad debt from the total income in the earlier assessment year and the business income was reduced and now assessee declares the recovery of debts as income, it will increase the income of the business. When the business income increases, the assessee will
57 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd. claim deduction u/s 10AA on proportionate basis. In the earlier year, assessee has foregone the deduction u/s 10AA by declaring the bad debts.
Therefore, as discussed in above paras, the order passed by the AO may be erroneous but certainly not prejudicial to the revenue. As held in the catena of the cases, the courts have held that both limbs of the section 263 should be satisfied, merely one of the limb fails, the provision of section 263 cannot be invoked. Accordingly, the order passed u/s 263 is set aside.
In the net result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 10th Jan 2020. Sd/- Sd/- (Ravish Sood) (S. Rifaur Rahman) न्याययकसदस्य / Judicial Member लेखासदस्य / Accountant Member मुंबई Mumbai;यदनांक Dated : 10.01.2020 Sr.PS. Dhananjay
58 I.T.A. No. 1608/Mum/2018 M/s Syscom Corporation Pvt. Ltd. आदेशकीप्रनिनिनिअग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant प्रत्यथी/ The Respondent 2. 3. आयकरआयुक्त(अपील) / The CIT(A) 4. आयकरआयुक्त/ CIT- concerned 5. यवभागीयप्रयतयनयि, आयकरअपीलीयअयिकरण, मुंबई/ DR, ITAT, Mumbai गार्डफाईल / Guard File 6. आदेशधिुसधर/ BY ORDER, .उि/सहधयकिंजीकधर (Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai