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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This appeal has been preferred by the assessee against order dated 29/3/2014 by the Ld. Commissioner of Income tax, Hisar u/s 263 of the Income-tax Act, 1961 for Assessment Year 2009-10 setting aside the assessment framed by the A.O. u/s 143(3) of the Act and restoring the matter to the file of the A.O. for making de-novo assessment.
2. The assessee is in the business of developing, operating and maintaining the infrastructure facility for bio-medical waste I.T.A. 2560/D/2014 Assessment Year : 2009-10 treatment. The return of income was filed claiming a deduction of Rs. 1,72,75,560/- u/s 80IA (4) of the Act. It was the claim of the assessee that it was an infrastructure company carrying on bio-medical waste treatment, which fell under solid waste management system. In the original assessment order u/s 143(3) dated 26/12/2011, the claim u/s 80IA was reduced from Rs.1,72,76,560/- to Rs. 1,66,73,315/- and a sum of Rs.6,03,245/- was disallowed as deduction on the ground that other income was not eligible for deduction u/s 80IA of the Act.
The Ld. CIT, Hisar issued a shows cause notice to the assessee u/s 263(1) of the Act on 4/3/2014 to which the assessee responded in detail on 18/3/2014. However, the Ld. CIT set aside the assessment order holding it to be erroneous and prejudicial to the interest of the revenue and restored the matter to the file of the A.O for making a de novo assessment. The assessee is now in appeal before us and has raised the following grounds:
“On the facts and in the circumstances of the case and in law the order u/s 263 (1) of the Income-tax Act, 1961 passed by the Commissioner of Income Tax, Hisar is devoid of jurisdiction as no error prejudicial to the interest of Revenue has been established and so must be quashed.
I.T.A. 2560/D/2014 Assessment Year : 2009-10
Additionally, the order u/s 263 of the Act proposing a redoing of the assessment merely on the basis of difference in opinion and holding that the Assessing Officer has failed to apply his mind on relevant provision of law is untenable on facts and law and unsustainable as such and must be quashed.”
The Ld. AR submitted that during the course of assessment
proceedings the AO raised the issue of deduction claimed by the assessee and the assessee justified its claim in respect of deduction u/s 80IA of the Act by giving a detailed note (enclosed at pages 48 – 50 of the paper book). The Ld. AR further submitted that the AO, after examining the assessee’s explanation, reduced the claim of deduction to Rs.1,66,73,315/- and held that the other income amounting to Rs.6,03,245/- was not eligible for the said deduction. Thereafter, a notice was issued by Ld. CIT (copy at pages 54-56 of the Paper Book), whereby the Ld. CIT raised the issue regarding the deduction u/s 80IA of Rs.1,72,75,560/- claimed by the assessee in respect of treatment of bio-medical waste, and stated that the same required further inquiry. In response to the said notice, the assessee submitted a detailed reply along with various documentary evidences to justify its claim of deduction u/s 80IA I.T.A. 2560/D/2014 Assessment Year : 2009-10 of the Act. The said reply is at Pages 57 – 66of the Paper Book.
The various details submitted along with the reply are at pages
67 – 132 of the Paper Book. The Ld. AR submitted that the Ld.
CIT, however, set aside the order of the AO and restored the matter back to the file of the AO for making a fresh assessment.
The Ld. CIT has held that the AO has not conducted necessary and proper enquiries and has not applied the relevant provisions of law, and thus, the order passed by the AO is prejudicial to the interest of the revenue.
The Ld. AR argued that the first and foremost allegation of the Ld. CIT is that the assessment order passed by the AO
without determination of total income and tax payable is illegal.
He submitted that in this regard, the following facts cannot be ignored:
(i) Copy of Audit Report submitted by the assessee in Form 10CCB (enclosed at PB 29 - 35). (ii) A proper reply regarding the justification of claiming the deduction u/s 80IA has been given by the assessee to the AO, which is enclosed at PB 48 - 50. (iii) The AO in his order dated 26.12.2011 has specifically mentioned the deduction claimed by the assessee and has also disallowed the same to the tune of Rs.6,03,245/- holding that the other income is not 4 I.T.A. 2560/D/2014 Assessment Year : 2009-10 eligible for deduction. (iv) The AO has also mentioned that the tax is to be charged as per the provisions of MAT as the tax payable as per MAT is more that the tax payable as per normal provisions. (v) A proper tax calculation has been given by the AO in the Annexure to the order, which the Ld. CIT has also referred to in his order in Para 3.3.1.
The Ld. AR further submitted that in view of the above facts, it is clearly evident that the order passed by the AO was in no way prejudicial to the interest of the revenue as the tax payable had been calculated in a separate Annexure. It was submitted that merely because the AO has not elaborately discussed the claim of assessee, the same cannot be a ground for invoking the provisions of section 263. The Ld. AR submitted that despite considering the reply of the assessee on other issues and even after appreciating the said replies, the Ld. CIT directed the AO to make a fresh assessment in assessee’s case, which is bad in the eyes of law and on facts. He submitted that this issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in the case of ITO v. D. G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi). Further reliance is placed on the judgment of ITAT Delhi in the case of Bharti Airtel Ltd. v. CIT [2015] 60 taxmann.com I.T.A. 2560/D/2014 Assessment Year : 2009-10 409 (Delhi - Trib.) The Ld. AR submitted that the Ld. CIT has alleged that the AO has not made proper enquiries however it is on record that the details of deduction claimed by the assessee along with the relevant justification of the said claim was submitted by the assessee before the AO. Further, the Audit Report in Form 10CCB was also submitted before the AO and it was only after verifying the claim of the assessee and considering the submissions of the assessee that the AO had restricted the claim of the deduction to Rs. 1,66,73,315/-. He submitted that it is clear from the above that the Ld. CIT has passed the order u/s 263 merely because of a different opinion in the said matter, which is not valid as per law.
As regards the merits of the case, the assessee company being in the business of developing, operating and maintaining the infrastructure facility of bio-medical waste (which falls under the solid waste), is eligible for deduction u/s 80IA(4) of the Act.
The justification of the said claim along with various documentary evidences was submitted by the assessee before the AO as well as before the Ld. CIT. It was submitted that the assessee also referred to the publication of World Bank Institute to justify that Bio-Medical waste is included in solid waste I.T.A. 2560/D/2014 Assessment Year : 2009-10 management. The said publication is at Pages 69 – 80 of the paer Book. The Ld. AR further submitted that the Ld. CIT has alleged that the assessee is paying rent for the plant and machinery which indicates that the facility is not owned by the assessee.
This finding recorded by the Ld. CIT is factually incorrect. The assessee has its own common bio-medical waste treatment facility (CBWTF) which is required for providing services and no rent is paid by the assessee for plant & machinery. The rent paid by the assessee company is for the land and building at Hisar, however the plant and machinery is owned by the assessee company only. Also, a payment of Rs.3 lacs has been made by the assessee as lease rentals to Director Health Services, Govt. of NCT of Delhi for the space provided for setting up of CBWTF at Delhi. The copies of invoices along with copy of cheques for the same were also submitted by the assessee before the AO and Ld. CIT. Though the rent was paid for the space, but the CBWTFs were owned by the assessee itself. The Ld. AR further submitted that the assessee had also submitted the following evidences before the AO as well the Ld. CIT, which will further ensure that the assessee is eligible to claim the deduction u/s 80IA(4) of the Act. The said details are as under:
I.T.A. 2560/D/2014 Assessment Year : 2009-10
Authorisation for operating facility for (Collection • Reception, storage, treatment, transport and Disposal of Bio Medical Wastes) under the Provision of Bio Medical Wastes Rules, 1988 Amended Rule, 2000 from Uttar Pradesh Pollution Control Board Grant of Authorisation under Rule 8(4) of the Bio • Medical Waste (Management and Handling) Rules, 1998 for the operating of facility for the collection, reception, treatment, storage, transportation and Disposal of the Bio Medical Waste from Haryana State Pollution Control Board Agreement with General Hospital & Trauma Center • Agreement with Director Health Services for the period • of ten years An agreement with UP Health System Development • Project for having or setting CTF at or around Lucknow
The Ld. AR submitted that the Ld. CIT has completely disregarded the justification as well as the documentary evidences submitted by the assessee and has held that the bio- medical waste management is not included in the solid waste management. The Ld. CIT has further held that the assessee is not eligible for the deduction claimed. The Ld. AR submitted that as per the Explanation to section 80IA (4) of the Act, infrastructure facility includes solid waste management. Further, it is important to mention here that the solid waste management includes the biomedical waste management, as has been I.T.A. 2560/D/2014 Assessment Year : 2009-10 provided in the World Bank publication. Further, this fact is also supported by the judgment of Hon’ble ITAT Mumbai in the case of ITO v. E. A. Infrastructure Operations P. Ltd. [2011]. The Ld. AR further submitted that were two views are possible and Assessing Officer follows one of the possible view, the CIT cannot sit over the judgment of the AO. This was held by the Apex Court in the case of CIT vs Max India Ltd. [2007] 295 ITR 282 (SC).
Similar view has been taken by Jurisdictional High Court in the case of CIT Vs Kelvinator India Ltd. [2011] 332 ITR 231 (Del). The Ld. AR submitted that the order u/s 263 being bad in law deserved to be quashed.
The Ld. DR, while supporting and defending the order of the Ld. CIT, submitted that there was no application of mind by the A.O and that the A.O had not conducted proper enquiries before allowing the claim of deduction. He submitted that the Ld.CIT has covered all these aspects in the impugned order which ought to be upheld. It was submitted that it is a fact on record that the claim of deduction u/s 80IA was made by the assessee through a revised return and not in the original return which casts a doubt on the bona fides of the claim. He also emphasized that the deduction u/s 80IA of the Act was allowable only on disposal of 9 I.T.A. 2560/D/2014 Assessment Year : 2009-10 waste and not on collection of waste which the assessee company was engaged in. He submitted that the Ld. CIT (A) had rightly set aside the assessment order and that the impugned order should be upheld.
We have heard the rival submissions and perused the relevant records. The Ld. AR has drawn our attention to various pages in the paper book which support the assessee’s claims that the A.O., during the assessment proceedings u/s 143(3) of the Act, had made extensive enquiries about the assessee’s claim of deduction u/s 80IA. A copy of the reply furnished by the assessee to the A.O in this regard is found to be placed in pages 46 to 51 of the Paper Book. A perusal of the assessment order also shows that on Page 2, the A.O has specifically allowed the claim of deduction u/s 80IA after reducing it by Rs.6,03,245/- on account of other income not being eligible for the claim of deduction. Therefore, it will be wrong to infer that there has been no application of mind by the A.O while considering the claim of the assessee although he might not have expressed it in terms of a lengthy discussion on the issue. The Hon’ble Delhi High Court in CIT vs. Sunbeam Auto Ltd 332 ITR 167 (Del) has opined in Para 17 of its order as under:- 10 I.T.A. 2560/D/2014 Assessment Year : 2009-10
“17. 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 Commissioner of Income-tax under section 263 of the Income- tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer 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 Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment 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” and “inadequate inquiry”. If there was any 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 cases of “lack of inquiry” that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):
"... From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the 11 I.T.A. 2560/D/2014 Assessment Year : 2009-10 records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is ‘erroneous in so far as it is prejudicial to the interests of the Revenue’. It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting 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 that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10).. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not I.T.A. 2560/D/2014 Assessment Year : 2009-10 visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualized where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income- tax Officer. That would not vest the Commissioner with power to reexamine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. . .
We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer 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 of the I.T.A. 2560/D/2014 Assessment Year : 2009-10 record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income- tax Officer cannot be held to be ‘erroneous’ simply because in his order he did not make an elaborate discussion in that regard. ”
Similarly, the Hon’ble Delhi High Court in ITO vs. DG Housing Projects Ltd. 343 ITR 329 (Del) opined as under:
“16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the 14 I.T.A. 2560/D/2014 Assessment Year : 2009-10 order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
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It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase “prejudicial to the interest of Revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. ”
Again, the Hon’ble Delhi High Court in CIT vs. Delhi Vs. New Delhi Television Ltd. 360 ITR (Del) held as under:-
“18. In the present case, jurisdictional pre-conditions stipulated in Section 263 of the Act are not satisfied. The Assessing Officer did conduct investigation and accepted the claim under Section 80HHF on being satisfied that the conditions stipulated in the said Section are satisfied. It is not the case of "no investigation". It is also not a case where per-se further investigation was required. Commissioner in his order, as noticed above, has been tentative and hesitant and did not decide whether the claim under Section 80 HHF has been rightly allowed by the Assessing Officer. He has noted the stand of the I.T.A. 2560/D/2014 Assessment Year : 2009-10 respondent, before him and before the Assessing Officer, but refrained from forming any opinion as to whether the acceptance of the claim by the Assessing Officer was erroneous or not. Power of review under Section 263 of the Act can be invoked only if the order is erroneous and for this the Commissioner must record the reason that the order was erroneous and the claim under Section 80FIFIF was wrongly allowed. Once the said claim was considered and examined by the Assessing Officer, Commissioner cannot set aside the order without recording contrary finding. This will be contrary to Section 263 of the Act. In paragraph 6 of the order dated 29th March, 2007, the Commissioner uses the expressions 'erroneous and prejudicial to the interest of Revenue' but did not cite any reason or ground for the said conclusion. Use of the words without elucidation indicates, that the said observation are presumptive or a suspicion and mere repetition of words but this does not satisfy the requirements under Section 263 of the Act. Order under Section 263 must be clear and must set out logical ground and reason as to why the assessment is erroneous and prejudicial to the interest of the Revenue. Decision in Gee Vee Enterprises (supra) is not applicable as enquiry was conducted by the Assessing Officer and he formed an affirmative opinion accepting the claim of the respondent.
In DLF Power Ltd. (supra), a similar reasoning and ratio was given and reference was made to the decision of a Full Bench of Delhi High Court in CIT vs. Kelvinator of India (2012) 256 ITR 1 (Del.). In the said case, order of remand to the Commissioner of Income Tax for fresh decision was passed after noticing that the Tribunal had considered the question of bifurcation of interest income with reference to the deduction under Section 80IA. It was I.T.A. 2560/D/2014 Assessment Year : 2009-10
recorded that this bifurcation and the nature of income was accepted by the Tribunal though the Commissioner of Income Tax had only given a tentative opinion that some elements of income may be eligible. Tribunal had given its own factual finding without there being verification or full and proper rebuttal. In these circumstances, it was observed that where an Assessing Officer does not carry out investigation which was per se required, there would be an error in the sense that the Assessing Officer has failed to carry out the requisite inquiry. This was again a case falling under the exception carved out and mentioned in the case of DG Housing Projects Ltd. (supra).
In view of the aforesaid discussion, question No. 2 has to be answered against the Revenue and in favour of the respondent assessee and it has to be held that the Assessing Officer during the course of original assessment proceedings, had delved deep into the question of deduction under Section 80HHF and was satisfied that the deduction made were as per law. Question No. 1 is also answered in favour of the respondent assessee and against the Revenue.”
In the instant appeal before us, the AO has conducted an enquiry. He has given a consideration to the claim of the assessee also as is evident from the disallowance made by him on account of other income. However, he has not launched a lengthy discussion on the issue of deduction but that does not lead to an inference that there has been a lack of enquiry on his part on the issue. It is clear that an order cannot be termed as erroneous I.T.A. 2560/D/2014 Assessment Year : 2009-10 unless it is not in accordance with law. If an AO, acting in accordance with law, makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO. Therefore, it cannot be held that in the instant case the AO’s order was erroneous and prejudicial to the interest of the revenue within the terms of section 263 of the Act. Once the said claim was considered and examined by the Assessing Officer, Ld. Commissioner cannot set aside the order without recording contrary finding. This will be contrary to Section 263 of the Act.
Therefore, without going into the merits of the claim of deduction, in view of the factual matrix of the case and respectfully following the ratio of the various judicial pronouncements as discussed above, we are of the considered opinion that the impugned action of the Ld. CIT u/s 263 of the Act was patently illegal and liable to be quashed. The proceedings u/s 263 of the Act are accordingly quashed.
In the result, the appeal of the assessee is allowed.
I.T.A. 2560/D/2014 Assessment Year : 2009-10 Order pronounced in the Open Court on 30th May, 2016.