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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM
आदेश / O R D E R Per Arun Khodpia, AM:
The captioned appeal is filed by the assessee against the order of Ld. PCIT, Raipur-01 passed u/s 263 dated 23-02-2022 for the AY 2017-18. In turn arise from the order of Ld. AO u/s 143(3) dated 27.12.2019.
The ground of appeal raised by the assessee are as under:
The assessment order passed by AO is neither erroneous nor prejudicial to the interest of Revenue. Ld. Pr. CIT erred in invoking the provisions of section 263 and in setting aside the assessment order for fresh enquiry. Order passed without properly appreciating the facts & evidence.
On the facts and circumstances of the case, the Ld. Pr. CIT has erred both on facts and in law in ignoring the fact that the issue
2 raised by him in notice u/s 263 was before the AO and as such the jurisdiction on this issue u/s 263 cannot be assumed by him. 3. On the facts and circumstances of the case, the learned Pr. CIT has erred both on facts and in law in ignoring the fact that the proceeding under Section 263 cannot be used for substituting opinion of the A.O. by that of the Pr. CIT.
On the facts and circumstances of the case, the order passed by Pr. CIT under section 263 of the Income Tax Act is unsustainable as power to revise can be invoked in the case of no/lack of enquiry, not in the case of inadequate enquiry.
On the facts and circumstances of the case, Pr. CIT has erred both on facts and in law in setting aside the issue of section 801A(4)(iv) to the file of the AO without proper appreciating the explanation of assessee given during the assessment proceedings brought on record and also on the facts that deduction u/s 801A(4)(iv) is being claimed and allowed to the appellant since AY 2012-13 onwards and also same is allowed and accepted during earlier years scrutiny assessment’s order u/s 143(3) of the Act to prove that there is no violation of provisions of section 801A(4)(iv) by the appellant.
The appellant reserves the right to add, amend or modify any of the ground/s of appeal.
While the matter is called for the hearing, the registry has indicated that the appeal of the assessee in the present case is barred by limitation by 206 days. The Ld. AR of the assessee has put forth the explanation to the cause for delay that, the erstwhile counsel of the assessee Shri Suraj Jhawar, who had appeared and represented the case of the assessee before lower authorities have opined that there is no requirement to file
3 any appeal before the ITAT against the order passed u/s 263. An affidavit of the director of the company, Shri Vijay Anand Jhawar has been furnished stating the same reason. It is submitted that, the assessee later consulted with other senior counsel and as advised had appointed a new counsel for the matter on 3rd November 2022, thereafter, the appeal was filed against the order u/s 263 with impugned delay. Copy of letter dated 03.05.2022, by M/s Jhawar & Co. wherein the earlier counsel’s opinion, as given to the board of directors of the assessee company has been produced before us, wherein the company was advised to file a writ petition before the Hon’ble High Court. Further, in order to prove the correctness of the fact that the assessee has acted upon the opinion of the counsel, an affidavit dated 14.07.2023 by the counsel, who has given a wrong opinion was also furnished before us, taking the onus of delay by the said counsel in filing of the appeal on account of his mistaken opinion. On such facts and circumstances, Ld. AR of the assessee has submitted that the assessee company is under bonafide belief, having an opinion from the professional that no appeal was to be filed, however when the correct position and procedure of the available remedy was come to the knowledge of the assessee, assessee immediately had taken the action and recourse to appoint a new counsel and to file the appeal before the ITAT. Ld. AR, accordingly, requested to condone the delay and to grant assessee an opportunity of being heard. After giving a thoughtful consideration to the facts and circumstances a/w supporting affidavits and evidence, causing the delay, we found it suitable to consider the request of the assessee’s counsel to condone
4 the delay in filing of the present appeal, thus, the same is permitted to be adjudicated.
The brief facts of the case and issue involved, culled out from the records are that the assessee is a Pvt. Ltd. Company, engaged in the business of manufacturing of sponge iron and MS Ingot and trading of related raw materials. As submitted by the assessee before the Ld. PCIT, in the process of manufacturing of sponge iron, waste flue gas gets generated. The kinetic and potential energy of waste flue gas so generated, is diverted to Waste Heat Recovery based boiler. Which leads to generation of power. This power generated is used to manufacturing process of sponge iron and MS Ingot. As per assessee, 100% profit from the power division of the company consisting of Waste Heat recovery-based boiler, turbine etc. is eligible for deduction u/s 80IA (1) being eligible business u/s 80IA(4)(iv).
Return of income for the year under consideration i.e. AY 2017-18 was filed by the assessee on 08-08-2018 declaring a total income of Rs. 1,31,17,380/-. The case of the assessee was subsequently, selected for complete scrutiny through “CASS” u/s 143(3) and the assessment order was passed on 27.12.2019, accepting and assessing the total income of the assessee at the amount as declared by the assessee under its return of income.
5 5. Later on, Ld. PCIT has perused the case records of the assessee, having observed that certain issues which needs attention of the Ld. AO during the assessment proceedings were not properly been verified, inadequately enquired or not examined by the Ld. AO, thus are fit for invoking the revisionary proceedings as prescribed under explanation 2 of section 263 of IT Act.
Ld. PCIT has raised the following issues while exercising the powers conferred upon him u/s 263. On perusal of the case revealed that the following issues:
(i) The assessee had only maintained the profit and loss account duly signed by Chartered Accountant in respect of power unit separately, but not maintained the balance sheet duly signed by the Chartered Accountant in respect of power unit separately, which is violation of Rule 18B (ii) Further, as per computation attached with Income Tax return for AY 2017-18, assessee claimed deduction u/s 801A(4)(iv) amounting to Rs. 8,68,43,623/• from gross total income amounting to Rs.9,99,61,001/- of non-eligible business i.e., sponge business of assessee, which should not be allowed. (iii) Further, assessee filed return on 08/08/2018 for AY 2017-18, which is beyond due date of filing return as specified under sub- section (1) of section 139. Therefore, there is also violation of section 80 AC of IT Act, 1961. Therefore, deduction claimed by assessee amounting to Rs. 8,68,43,623/- is irregular & should be added back to the total income of assessee. This would result in short levy of tax i.e., Rs. 3,85,59,192/- including interest.
6 Addition as above Rs. (rounded to nearest ten) 8,68,43,620/- Tax@33.384% (including 30%tax &7% Rs. surcharge & edu. Cess ©4% on 2,89.91,874/- (Tax +surcharge) Interest u/s 234B © 1% from 04/17 to Rs. 95,67,318/- 12/19 i.e 33 months on above Rs. Total tax and interest 3,85,59,192/-
Where in computing the total income of an assessee of any previous year relevant to the assessment year commencing on or after- (i) The 1st day of April 2006 but before the 1st day of April 2018, any deduction is admissible under section 80IA or section 80IAB or section 80IB or section 80IC for section 801D or section 801E;
(ii) The 1st day of Apri1,2018 any deduction is admissible under any provision of this Chapter under the heading "C- Deductions in respect of certain incomes", no such deduction shall be allowed to him unless he furnishes a return of his income for such assessment year on or before the due date specified under sub-section (1) of section 139.
Therefore, deduction claimed by assessee amounting to Rs.8,68,43,623/- is irregular & should be added back to total income of assessee. Considering the facts narrated in the foregoing paras which have emanated from the case record, it is seen and observed that the order passed u/s 143(3) of the Income tax Act, 1961 vide order dated 27.12.2019 is erroneous and prejudicial to the interest of revenue. Since the issue discussed supra have not been properly verified by the AO while passing the assessment order by conducting proper enquiries and examination of accounts,
7 therefore, the assessment order passed u/s 143(3) of the Act is erroneous in so far as it is prejudicial to the interest of the revenue in light of the section 263 of the IT Act, 1961.
In view of the aforesaid facts, a show cause notice u/s 263 for 20/12/2021, was issue to the assessee incorporating the above facts to furnish reply/explanations in support of its claim.
In response assessee had furnished a written submission on 29/12/2021. Nonetheless, considering the response of the assessee which was not found convincing by the Ld. PCIT, he observed that on the issues raised in the notice u/s 263, the Ld. AO was failed in conducting adequate enquiries, therefore considering the provisions of explanations 2 of section 263 which is effective from 01/06/2015, applicable on the year under consideration, so, the order of AO was deemed to be erroneous in absence of enquiries or verification. Certain case laws were relied upon by the PCIT and has concluded that “I am of the considered opinion that assessment order is erroneous insofar as its prejudicial to the interest of revenue in view of section 263 of the I.T. Act, thus, for set aside the assessment order to the AO, directing that proper opportunity of being heard to be provide to the assessee and to examine the mentioned issue afresh and accordingly passed fresh assessment order as per the provision of I.T. Act, 1961”.
8 9. Aggrieved by the aforesaid observations and the order of the Ld. PCIT, the assessee preferred the present appeal before us.
To start with the arguments on behalf of the assessee, Ld. AR. furnished a request to raise an additional ground of appeal, the same is admitted and allowed to press. The contents of the additional ground are as under: 1. The appellant is in appeal before your honor against order of the Ld. PCIT, Raipur - 1 dated 23.02.2022 passed u/s 263 of the Income Tax Act, 1961 for the assessment year 2017-18.
Without prejudice to the existing grounds of appeal raised in the Memorandum of Appeal, the Appellant prays for the admission and adjudication by the Hon'ble Tribunal, of the following Additional Grounds of Appeal which are purely legal and deal with the root of the matter of the case, which do not require investigation into, or examination of, any new facts or evidence that were not already available before the Ld. AO and Ld. Pr. CIT. The additional grounds of appeal merely involve interpretation of the law of the Income Tax Act, 1961 arising from the facts of the case, which the Hon'ble Tribunal is otherwise competent to do, in view of the principles laid down by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC).
Before Ground No. 1, the following additional grounds may kindly be allowed to be added. Additional Grounds of Appeal:
That, on the facts and circumstances of the case, the order passed by the Ld. Pr. CIT assuming jurisdiction under section 263 of the Act, is bad in law, having been
9 initiated at the instance of audit objection only. Merely, an audit objection cannot be a basis of revision of assessment orders by the Ld. Pr. CIT without any independent enquiry and application of mind. Revision proceedings u/s 263 of the Act has been triggered only based on borrowed satisfaction i.e., Audit Objection and not based on independent application of mind by the Ld. Pr. CIT. Therefore, the Order passed by the Ld. Pr. CIT on this ground alone is bad in law, void, invalid and liable to be quashed.
In view of the above, since the additional ground of 2. appeal raised goes to the root of the matter having a vital bearing on the tax liability of the appellant, it is prayed that the additional grounds of appeal raised may kindly be admitted exercising the plenary powers vested in your honors under Rule 11 of the Appellate Tribunal Rules, 1963 r.w.s. 254 of the Income Tax Act, 1961.
Apropos, the aforesaid additional ground raised by the Ld. AR, it was the submission that the provisions of sections 263 has been triggered only based on the borrowed satisfaction i.e. Audit objection and not based on independent application of mind by the Ld. PCIT, therefore, the order passed by Ld. PCIT on this ground alone is bad in law, void, invalid and liable to be quashed. A copy of the audit report dated 05-03- 2021, raising such objection is also enclosed with the additional ground.
Contradicting to the additional ground raised by the assessee, Ld. CIT-DR has submitted that even if the issue has been raised by the audit
10 team of the department but the notice u/s 263 was issued by the Ld. PCIT after his own satisfaction and with due application of mind, it is further mentioned that it is prerogative of the Ld. PCIT to decide after calling and going through the assessment records, that whether the objection raised by the Audit is to be taken up for remedial action u/s 263 or not, hence it cannot be said that the initiation of proceedings u/s 263 was without any application of mind or based on borrowed satisfaction. It is thus submitted that the order of Ld. PCIT u/s 263, which is under consideration in the present appeal cannot be termed as bad in law or invalid on this count, thus, the same deserves to be sustained.
We have considered the rival submissions qua the additional ground pertaining to audit objection / borrowed satisfaction raised by the Ld. AR, perused the material available on record and the relevant provisions of the law. In the present case the notice u/s 263 dated 20-12- 2021 was issued to the assessee raising the question on deduction claimed by the assessee u/s 80-IA, under the situation wherein there was an alleged violation of provisions of section 80AC of the IT Act, wherein it is mandated that the return of income was supposed to be filed on or before the due date specified u/s 139(1), whereas as observed by the Ld. PCIT, in the present case the assessee has filed the return on 08-08-2018 for the AY 2017-18 i.e., after the date specified u/s 139(1). There were also certain other violations on the part of the assessee as recorded by the Ld. PCIT, whereby the assessee’s claim u/s 80-IA was found to be not in accordance with the provisions of law or
11 with compliance of the procedure laid down in the law. The objections of the assessee that Ld. PCIT has not exercised independent application of mind and all the short comings noted in the notice u/s 263 were picked up from the audit objection, therefore, such an action of the Ld. PCIT in assuming jurisdiction conferred upon him within the provisions of section 263 was bad in law, which in turn makes the order passed u/s 263 void, is not acceptable, since the PCIT has perused the case records of the assessee for the relevant AY, may be after the issue has been raised under the audit objection but still it was the duty of Ld. PCIT to check whether such issue has been examined by the AO or not, adequate enquiries as required in terms of the provisions of the law were conducted or not, and in case it is found that the order passed by the Ld. AO was without proper verification of the issue and, therefore, the same was erroneous so far as prejudicial to the interest of revenue, then the PCIT has to decide and to consider the matter to exercise the powers u/s 263, so as to remove the error in the order of AO by initiating the revisionary assessment proceedings. Under such scenario, it cannot be construed that, if an issue is surfaced by the audit team, the Ld. PCIT has no powers to touch the said issue by way of invoking the provisions of section 263, rather with effect from 01-06-2015 after introduction of explanation 2 in section 263, the Ld. PCIT’s powers are further strengthen and widened to exercise the same, in the circumstances, wherein in the opinion of the PCIT, (a) the order passed by the AO was without making inquiries or verifications which should have been made; (b) allowing any relief without enquiry into claim, the order has not been
12 made in accordance with any order; (c) direction or instruction by the board u/s 119 or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the Jurisdictional High Court or Supreme Court in the case of the assessee or any other person. Our conviction to this position further fortified in terms of CBDT’s Instruction no. 7/2017 dated 21.07.2017, wherein PCIT is specifically entrusted in the cases wherein objections have been raised by Revenue Audit and such objections are accepted, the PCIT shall decide if the relevant order under audit requires revision u/s 263, as remedial action, if yes, he shall call for the relevant records and proceed to initiate action u/s 263. Extract of the Circular No. F. No. 246/06/2023- A&PAC-I-79 Dated:16.02.2023, specifically explaining the Procedure for remedial action in cases where Revenue Audit Objection is accepted, therein having a mention about the action required on the part of the Ld. PCIT which is binding on the revenue authorities, is affixed here under for ready reference:
In view of aforesaid discussion, based on provisions of law as well as binding nature of instructions of CBDT, we are of the considered opinion that there is no substance in the additional ground raised by the assessee which constitutes that the revision proceedings u/s 263 are bad in law since the same is based on borrowed satisfaction i.e., audit objection and not with independent application of mind by the Ld. PCIT. Consequently, additional ground raised by the assessee is rejected.
Now, we shall be taking the grounds of appeal No. 1 to 5, collectively, since all the grounds pertains to the same controversy.
At the outset, Ld. AR submitted return synopsis of arguments the same is extracted as under:
Synopsis of arguments taken in written submission With respect to Ground - 1 and 2 1. That, The Ld. PCIT has erred in invoking the provisions of section 263: If the Act without properly appreciating the facts of the case. The Ld. PCIT concluded that the appellant has not maintained proper books of accounts which is incorrect. The books of accounts are maintained as per Companies Act, 2013 and are duly audited by a Chartered Accountant. The balance sheet of the eligible business is incorporated in the Audited Financial Statements in Note - 30 under Segment reporting. The non-furnishing of balance sheet in form 10 CCB is a procedural mistake.
The Ld. PCIT has concluded that the deduction under section 80IA. cannot be allowed to be set off against non- eligible business. which is incorrect. The appellant is
15 engaged in manufacturing of sponge iron and MS Ingot and generation of power through WHRB which is considered as an eligible business under the provisions of section 80 IA.
The Ld. PCIT has erred in concluding that the appellant has violated the provisions of Section 80AC of the act which is factually incorrect. The ROI was filed on 27.10.2017 and revised on 08.08.2018, however. the deduction for 80IA was already claimed in the original return itself.
The appellant also relies on various case laws in support of the above submission. With respect to Ground - 3 and 4 5. That, the Ld. PCIT has invoked the provisions of Section 263 of the Income tax act, 1961 to replace the opinion of the Ld. AO with that of the Ld. PCIT which is not tenable in law and therefore the order of the Ld. PCIT is liable to be quashed. The Ld. PCIT has erred by invoking the provisions of Section 263 of the Income Tax Act, 1961 on the premise of no enquiry. What may seem right to the Ld. AO may not seem right to the Ld. PCIT. The facts of the case are operating within the corners of law and therefore Section 263 cannot be invoked to replace the opinion of the Ld. AO with that of the Ld. PCIT.
That, the Ld. PCIT must carry out some enquiries before invoking the provisions of Section 263 of the Income Tax Act,1961. The Ld. PCIT has contended that he is no longer required to cause any enquiries in case the order of the Ld. AO is prejudicial to the revenue. This would lead to needless proceedings without any finality of outcome. Invoking the provisions of Section 263 of the Income tax Act, 1961 without any corroborating evidence is not tenable and liable to be quashed. The Ld. PCIT has to make some independent enquiry to reach to the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue. Mere statement containing that the order of the Ld. AO is prejudicial to revenue is not sustainable as per law and is liable to be quashed.
The appellant also relies on various case laws in support of the above submissions.
16 With respect to Ground- 5 8. That, the Ld. PCIT has not appreciated the facts of the case of the appellant, The deduction under section 80 IA of the act was already allowed to the appellant in scrutiny assessment in earlier years for AY 13-14, 14-15 AND 15-16 and the Ld. PCIT has not brought forward any material evidence to contend that there is a material change in the situation of the appellant to disallow the deduction of the appellant. 9. The appellant also relies on various case laws in support of the above submissions.
In view of the aforesaid submissions, Ld. AR of the assessee submitted that the order of Ld. PCIT u/s 263 in the case of assessee for the AY 2017-18 dated 23-02-2022 was not justified in terms of facts of the case as well as in law.
Contrary to the submission of Ld. AR, Ld. Sr. DR submitted that since the assessee has filed its return of income on 08-08-2018 i.e., after the date as specified under subsection (1) of Section 139, therefore, there was a violation of the IT Act. Certain other irregularities or incomplete compliances as mandated by the law were also found, therefore, the deduction claimed u/s 80-IA(4)(iv) by the assessee was wrongly allowed by the AO, without any whisper of the proper enquires or any view expressed on the same, as such the order of Ld. AO was proved to be erroneous in so far as prejudicial to the interest of revenue, accordingly the proceedings u/s 263 were rightly invoked. Certain clarifications pertaining to facts are subject to verification, therefore, Ld.
17 PCIT has rightly set aside the order of Ld. AO, hence, the order of Ld. PCIT u/s 263, deserves to be upheld.
We have considered the rival contentions, perused the material available on records, legal pronouncements relied upon and the relevant provisions of the Act. In the present case, factually, on perusal of acknowledgement of the Income Tax return in ITR-6 for the AY 2017-18 filed by the assessee placed that page no. 37 of the assessee’s PB(APB), it is apparent that the original return u/s 139(1) was filed on 27- 10-2017 and deduction under chapter VI-A was also claimed, however, assessee has revised its return on 08-08-2018 in ITR-6 with the same deduction under chapter VI-A, copy of the same is furnished act page no. 38 of the APB. This fact clearly establishes that the return of income filed by the assessee for the relevant AY was within the specified date for submission of return u/s 139(1) i.e., 7th November, 2017 (extended by CBDT from 31st October, 2017 to 7th November, 2017), assessee’s response dated 29-12-2021 towards the notice issued u/s 263 on 20-12- 2021 also have such explanation before the Ld. PCIT and, therefore, violation of section 80AC of the IT Act, as observed by the Ld. PCIT is incomprehensible. However, observation of the Ld. PCIT that separate balance sheets for the power unit was not furnished by the assessee, the same is tantamount to violation of Rule 18BBB of the Act, such fact needs verification, which the Ld. AO has overlooked. Assessee’s contention that the assessee was allowed deduction u/s 80IA in the earlier AY years i.e., 2013-14, 2014-15 and 2015-16 can be taken as a
18 plausible explanation on the principle of consistency for allowing the deduction in the year under consideration, but the compliance pertaining to any disallowance as prescribed in the law has to be examined for each year separately, which is not dependent on the year other than the relevant year and the assessee is bound to follow such discipline, so as the departmental authorities, who are also duty bound to verify fulfilment of such necessities before allowing the deductions prescribed in the Act. Regarding, assessee’s contention that proceedings u/s 263 cannot be used for substituting opinion of the AO by date the principal CIT, though a specific query regarding deduction u/s 80IA was asked by the Ld. AO, but the requirement of separate balance sheet of the power generation unit for admissibility of deduction u/s 80IA as prescribed in Rule 18BBB, wherein clause 2 of the said Rule specifies that “ A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction u/s 80-I or 80-IA or 80-IB [or 80-IC] and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity.” Since, such a specific requirement of the Section for allowing the deduction was not touched by the Ld. AO, this makes the order of Ld. AO erroneous, which was without proper enquiries and examination of the records. Assessee also argued about the eligibility of the business for deduction u/s 80IA, have explained the process of business, power generation and related aspects, however, we are not dealing with such contentions as the same is also subject of verification for which the Ld. PCIT has rightly set aside the order to the files of Ld. AO, without
19 reaching to any logical conclusion, providing the assessee proper opportunity of being heard and to be represented in the set aside proceedings. In view of the aforesaid facts and circumstances, in terms of our observations, we are of the considered opinion that Ld. PCIT has rightly assumed the jurisdiction u/s 263 of IT Act, in terms of explanation 2 of section 263, consequently, the order passed u/s 263 is held as sustained.
In the result appeal filed by the assessee stands dismissed, in terms of our observations here in above.
Order pronounced in the Open court on 17/10/2023.
Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) �याियक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER रायपुर/Raipur; �दनांक Dated 17/10 /2023 Vaibhav आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- 1. ��यथ� / The Respondent- 2. 3. आयकर आयु�(अपील) / The CIT(A), 4. आयकर आयु� / CIT 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, Raipur गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, // True Copy //
(Assistant Registrar) आयकर अपीलीय अिधकरण, रायपुर/ITAT, Raipur