PERFETTI VAN MELLE INDIA PVT. LTD.,,GURGAON vs. PR CIT, GURGAON

The grounds of appeal are as under:- 1. “That on facts and circumstances of the case and in law, order dated 29.3.2016 passed by the Ld. Principal Commissioner of Income Tax [“PCIT”] u/s 263 is grossly without jurisdiction, bad in law, unlawful and invalid as necessary statutory preconditions for invocation of jurisdiction are not satisfied.

The Pr. CIT, Gurgaon observed that the company has three units at Rudrapur, Manesar and Chennai. The company claimed deduction u/s 80IC only on one unit situated in Rudrapur (Uttrakhand). The other units at Manesar (Gurgaon) and Chennai are bigger and older than the Rudrapur (Uttrakhand) unit. Income of Rudrapur unit is shown to the extent of Rs. 53,48,23,878/-. Net profit as per P&L account is Rs. 49,78,05,000/- which includes other income of Rs. 11,11,10,000/- which means the assessee incurred loss in the other two units. The assessee claimed deduction u/s 80IC of the Income Tax Act to the extent of Rs. 53,48,23,878/- on total turnover of Rs. 304,48,51,644/- i.e. the assessee has shown net profit @17.56% in the unit on which deduction is claimed. On the other hand, the net profit as per P&L account of the assessee is Rs. 49,78,05,000/- on the total turnover of Rs. 824,65,76,000/- i.e. profit @6%. Form No. 10CCB i.e. report of the auditor u/s 80IC of the Act was submitted by the Assessee. In the said report, details of the assessee are mentioned from column 1 to 13 and for eligible business u/s 80IC of the I.T. Act, were mentioned in column no. 25 & 26 of the report. In column no. 25, it was mentioned that the unit is situated in notified area with description of area. The date of commencement of production is mentioned as 15th May, 2007. In column no. 25(f) the auditor mentioned whether the enterprise is involved in manufacture of any article or thing specified in Schedule-XTV. In this column, the auditor ticked ‘yes’ column and mentioned the item manufactured as Pharma products/chloromint candy. The item Pharma product is covered by Serial no.12 of part-C of Schedule-XIV. However, it is noticed that the assessee company is not involved in manufacturing of Pharma products as mentioned in schedule XIV, as was found during assessment proceedings for A.Y. 2011-12.

The Pr. CIT, Gurgaon further observed that the issue of claim of deduction u/s 80IC was examined in A.Y. 2011-12 wherein the facts are same. The claim of deduction was disallowed in the draft assessment order for A.Y. 2011-12 with the final findings as below:-

The Pr. CIT Gurgaon observed that the facts of the case are similar in A.Y. 2009-10 as well and further observed that in A.Y. 2009-10, the Assessing Officer did not examine the issue in respect of claim of deduction u/s 80IC of the Income Tax Act made by the assessee company. The Pr. CIT also observed that the Assessment Order was passed without making any enquires or verification regarding the claim of deduction u/s 80IC of the I.T. Act, which should have been made although it is apparent from the records particularly the report of Auditor that the claim is not allowable as per provisions of the Act. Further, the Pr. CIT mentioned that the Assessing Officer did not examined/verified the allocation of expenses between three units run by the assessee to ascertain the correct income derived by the unit at Rudarpur. In the order so passed the claim of deduction u/s BOTC was allowed resulting in under assessment to the extent of Rs. 53,48,23,878/-. The assessee company was provided an opportunity to show cause as to why the assessment order passed by the DCIT, Circle-2, Gurgaon u/s 144C(13) r.w.s. 143(3) dated 07.01.2014 for A.Y. 2009-10 in its case should not be revised u/s 263 of the Income Tax act, 1961 by the Pr. CIT. The CA of the assessee company attended the hearing and furnished the submissions. After giving proper opportunity to the assessee company, the Pr. CIT vide order dated 29.03.2016 u/s 263 of the Act held that the assessment order u/s 144C(13) dated 7/1/2014 for the A.Y. 2009-10 passed by the Assessing Officer is prima-facie erroneous and prejudicial to the interest of the revenue and hence, because of the fact that the order is passed without making inquiries or verification which should have been made, liable to be revised u/s 263 of the Act.

Being aggrieved by the order dated 29.03.2016 u/s 263 passed by the Pr. CIT, the assessee company has filed the present appeal before us.

The Ld. AR submitted that the claim of deduction under Section 80IC of the Act made by the assessee was widely examined by the Assessing Officer during the course of the assessment proceedings and the deduction was allowed after considering all the documents and submissions filed by the assessee before the Assessing Officer. The Ld. AR submitted that the facts of the present assessment year are different from that of A.Y. 2011-12. The Ld. AR further submitted that in A.Y. 2011-12, the assessee did not manufacture the said Pharma products, though the assessee fulfilled all the conditions to claim deduction under Section 80IC of the Act, due to technical error in Form 10CCB, the claim of deduction under Section 80IC of the Act was rejected by the Assessing Officer against which the assessee filed appeal and the Tribunal remanded back the issue to the file of the Assessing Officer. The Ld. AR submitted that the Pr. CIT has taken a different view than the Assessing Officer and hence does not attract invocation of Section 263 of the Act.

The Ld. DR submitted that Pr. CIT rightly passed order u/s 263 of the Act as the assessee company had claimed deduction u/s 80IC of the Act at Rs. 53,48,23,878/- in its return of income furnished for A.Y. 2009-10 and the Assessing Officer allowed the same without any justification. It is noticed by the Pr. CIT that the Assessing Officer had issued a questionnaire to the assessee to furnish a note on activity carried out by the unit claiming deduction u/s 80IC and explanation as to how the unit is eligible for deduction u/s 80IC of the Act and also asked to furnish separate profit and loss account of the Rudrapur Unit alongwith basis for allocation for expenses to the Rudrapur Unit. In response, the assessee furnished written submissions. The Ld. DR submitted that the Pr. CIT after perusal of the quarterly statement furnished by the assessee company with the Commissioner, Central Excise, Meerut for F.Y. 2008-09, noticed that the assessee company had also manufactured other products such as ‘chewing gum’, ‘toffee’ and ‘bubble gum’ in addition to manufacturing of Pharma Products for which the assessee company is not entitled for deduction u/s 80IC of the Act as these article or things are not specified in the Fourteenth Schedule. But the Assessing Officer has not made any enquiries or verification which should have been made before allowing any relief u/s 80IC of the Act to the assessee company in the assessment order passed. Thus, the Assessment Order passed by the Assessing Officer u/s 143(3) r.w.s. 144C(13) of the Act dated 07.11.2014 for A.Y. 2009-10 is erroneous and prejudicial to the interest of the Revenue. The Ld. DR submitted that the present case is covered by the decision of the Hon’ble Apex Court in case of Deniel Merchants Private Limited & Anr. Vs. Income Tax Officer (Appeal No. 2396/2017 order dated 29.11.2017). The Ld. DR also relied upon following decision of the various Hon’ble High Courts and Tribunal:

We have heard both the parties and perused all the records. It is pertinent to note that the assessee is engaged in manufacturing of a variety of confectionary productions which includes Big Babool, Alpenlibe, Centre Fresh, Center Fruit, Center Shok, Chater Pater, Chlor-mint, Choco-tella, Cofitos, Happydent White, Protex Happydent, Marbels, Mentos etc. From these products it can be seen that all products are not that of pharma, chlor-mint, ayurved based products. There are confectionary products as well. The Pr. CIT after perusal of the quarterly statement furnished by the assessee company with the Commissioner, Central Excise, Meerut for F.Y. 2008-09, noticed that the assessee company had also manufactured other products such as ‘chewing gum’, ‘toffee’ and ‘bubble gum’ in addition to manufacturing of Pharma Products for which the assessee company is not entitled for deduction u/s 80IC of the Act as these article or things are not specified in the Fourteenth Schedule. But the Assessing Officer has not made any enquiries or verification which should have been made before allowing any relief u/s 80IC of the Act to the assessee company. The decision of the Hon’ble Supreme Court in Malabar Industrial Company Ltd. vs. CIT (243 ITR 83)(SC) held that the Commissioner has to satisfy himself of both the conditions, firstly order being erroneous and secondly order being prejudicial to the interest of revenue. Both these test have been seen by the Principal Commissioner of Income Tax in the present case and aptly applied in the present case. It is also held by the Hon’ble Apex Court that the provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. Thus, the Pri. CIT has looked into the aspect of the Assessment Order in the present case to the extent of erroneous and thus, Section 263 of the Act is attracted in the present case. Section 263 of the Act is not invoked simply for correcting mistake or error committed by the Assessing Officer in the present case. It can be observed that the Pr. CIT has considered all the contentions of the assessee and thereafter rightly come to the conclusion that the Assessing Officer failed to consider the fact that whether the assessee is entitled for claim under Section 80IC or not in respect of the products which do not come under the ambit of Fourteenth Schedule. It can be seen that the Pr. CIT has properly invoked the provisions of Section 263 and there is no procedural lapse on the part of the Pr. CIT. In fact, the Assessing Officer did not made any inquiry and there is no mention of the same in the Assessment Order itself which proves that the order is passed without making inquiries or verification which should have been done by the Assessing Officer before allowing the claim u/s 80IC of the Act. Thus, it is prejudicial to the interest of the Revenue and there is loss of revenue. The Pr. CIT after issuing the Show Cause Notice u/s 263 of the Act given ample opportunity to the Assessee for explanation and dealt with the reply/details filed by the assessee in proper manner. Thus, proper opportunity was given by the Pr. CIT to the assessee during the proceedings u/s 263 of the Act. The present case is covered by the decision of the Hon’ble Apex Court in case of Deniel Merchants Private Limited & Anr. Vs. Income Tax Officer (Appeal No. 2396/2017 order dated 29.11.2017). The Hon’ble Supreme Court held as under:

In result, appeal of the assessee is dismissed.