Non allocation of common expenses in deduction u/s 80IA – ITAT quashed revision order

Non allocation of common expenses for deduction u/s 80IA – ITAT quashed revision order

Non allocation of common expenses to eligible business for claiming deduction u/s 80IA – ITAT quashed revision order u/s 263 passed by PCIT

In a recent judgment, ITAT has quashed revision order u/s 263 passed by PCIT on account of non allocation of common expenses to eligible business profit for claiming deduction u/s 80IA

ABCAUS Case Law Citation:
ABCAUS 3948 (2024) (04) ITAT

Important Case Laws relied upon:
Parashuram Pottery Works Co. Ltd Vs ITO [1977] 106 ITR 1
Malabar Industrial Limited vs CIT 243 ITR 83 (SC)
TTK LIG Ltd., v/s. ACIT (Mad) 51 DTR 228
CIT v/s. Raisons Industries Ltd., 288 ITR 322 (SC)
Seshasayee Paper & Boards Ltd. [2000] 242 ITR 490 (Mad.)
Commissioner to Income-tax v. Gabriel India Ltd. [1993] 71 TAXMAN 585 (BOM.)
Commissioner of Income tax, Central-III v. Nirav Modi [2017] 291 CTR 245 (Bombay)
Commissioner of Income-tax v. Sunbeam Auto Ltd [2010] 189 Taxman 436 (Delhi)
Sir Dorabji Tata Trust v/s DCIT [2020] 122 274 (Mumbai – Trib.)
Nabha Investments (P.) Ltd. V. Union of India [2000] 112 Taxman 465 (Delhi)
J.P. Srivastava & Sons (Kanpur) Ltd. Vs. Commissioner of Income-Tax [1978] 111 ITR 326 (All.)
Agrani Buildestate vs Pr. CIT
PCIT vs. Shark Mines and Minerals Pvt. Ltd. [2023] 151 71 (Orissa)
Commissioner To Income-Tax V. Gabriel India Ltd. [1993] 71 Taxman 585 (Bom.)

In the instant case, the assessee had challenged the revisionary order u/s 263 of the Income Tax Act, 1961 (the Act) passed by the PCIT inter alia on the issue of deduction u/s 80IA of the Act.

Revision u/s 263

The assessee in its return had claimed deduction u/s 80IA towards generation of electricity through the windmills. The case of the assessee was selected for under CASS under complete scrutiny criterion on one of the issue of deduction claimed for Industrial undertaking u/s 80IA of the Act.

The assessment was completed without making any modification and the assessment was completed by the Faceless Assessment unit u/s 143(3) of the Act and the returned of income filed by the assessee was accepted by the Assessing Officer of NeFAC.

The PCIT after completion of the assessment in this case, called for the assessment records for examination. The PCIT noted that one of the issues of selection of the case under scrutiny was huge claim of deduction u/s 80IA. The AO had to examine as to whether the claim was correct and as to whether any expenses related to eligible business has been diverted to non-eligible business so as to enhance profit of eligible business.

The PCIT noted that director’s remuneration, tour and travelling and telephone and internet expenses which warranted allocation among eligible business and non-eligible business had not been considered.

The PCIT noted that this allocation was required to be made in the proportion of busine income of eligible and non-eligible business which will reduce the claim u/s 80IA and would result in increase in taxable amount. However, the AO/NeFAC didn’t make any addition on this issue while completing the assessment

The PCIT further noted that no such allocation had been made by the assessee company on its own or by the FAO at the time of finalizing the assessment. The accounts showed that as such no common expenses had specifically been mentioned in the audited accounts or in the Audit Report in form 10CCB.

Therefore, the PCIT held that due to lack of enquiry and also due to incorrect and incomplete appreciation of facts and law, the assessment order was erroneous insofar as it was prejudicial to the interest of revenue.

Before the Tribunal, the assessee filed a detailed submission and relied upon a number of judgment to argue that the impugned proceedings were invoked without jurisdiction and deserves to be set aside.

It was submitted that the AO after conducting detailed enquiry and after going through the details/information in as much as after verifying the documents produced for verification took a plausible view for making assessment after accepting the claim of the Appellant. The case of Appellant was not falling under the clause (a) and (b) of the explanation 2 to Section 263(1) of the Act.

It was submitted that it is a settled legal position that an order cannot be termed as erroneous unless it can be shown to be an order which is not in accordance with law. If the AO, acting in accordance with law, makes certain assessment, the same cannot be termed as erroneous merely because the PCIT wants an assessment to be in a different manner.

The assessee submitted that the Assessment Order was passed by the National e-Assessment Centre, Delhi and highlights the relevance of E-Assessment Scheme, 2019, which outlines the assessment procedure conducted at multiple levels i.e., National e-Assessment Centre (‘NeAC’), Regional e-Assessment Centre (‘ReAC’), assessment units, verification units, technical units, and review units.

Placing reliance on the judgment of the Co-ordinate Bench it was submitted that assessment

was carried out in the ‘’faceless manner’’ by NFAC. It is a fact that any faceless assessment is carried out through a teamwork of assessment unit, technical unit, review unit, verification unit etc. Since different units are headed by Principal Commissioner of Income Tax, therefore, in a faceless regime, normally there cannot be a case of prejudice of lack of enquiry for the reason that there is application of mind by multiple officers of Department and not by a single officer and thus at the end of our discussion, we are of the view that the assessee firm had furnished the requisite information and the NFAC has completed the assessment after considering all the facts, therefore, the order passed by the AO.

It was further submitted that the assessment proceeding had been conducted in a phased manner. During the assessment proceedings, the detailed submissions, information, documents, and justifications provided by the assessee were carefully examined, including technical examination and verification by specialized teams. Consequently, the final order was passed once all the units of the assessment centre were satisfied with the provided information.

It was submitted that during the assessment proceedings the AO NeFAC demanded an explanation for the deduction claimed under Section 80IA of the Act by way of notices u/s 143(2) and 142(1) of the Act. For verification of the claim u/s 80IA, the notices called for furnished P&L accounts (Project wise), documentary evidence regarding sale thereof with copy of Bills/vouchers raised, bank statement(s) relevant to the sale proceeds appearing therein, ledger account(s) of the persons/concerns to whom sale was made, complete details/ledger account(s) and documentary evidence in regard to all the expenses claimed. In response to these notices, the assessee diligently submitted detailed replies addressing the concerns raised and later on verified by the AO himself.

It was submitted that in view of the notices and replies furnished, the matter in the case has been decided by the AO by duly applying his mind and after examining the information and documents placed before him. Thus, when the proceedings have been concluded by deciding that no disallowance u/s 80IA of the Act has to be made and no expenses from the eligible business have been diverted to the non-eligible business in order to increase the profit of the eligible business, then the order of the Ld. AO cannot be treated as erroneous and prejudicial to the interest of the revenue

It was contended that the AO took plausible view on the issue of 80IA and accordingly justified in passing assessment order.

The Tribunal opined that correspondence exchanged during the course of assessment proceeding establish that the issue of deduction u/s 80IA had been taken up, examined and thereafter, the NeFAC had taken a plausible view on the matter. The PCIT on this issue trying that the issue would have been examined in way he wanted to examine.

The Tribunal opined that the AO had asked for the details and applied his mind on the issue and decided not to make any disallowance u/s. 80IA of the Act.

The Tribunal noted that the assessee had contracted separately for operation and management of the windmill and the amount of such payments were included in repairs and

maintenance expenses in audited profit & loss account of each windmill. All these evidences suggest that the directors were not involved in operation and management of windmill segment. Thus, based on the evidences the AO took a plausible view on the issue.

The Tribunal opined that here the twin conditions were not satisfied and the PCIT did not bring on record that the order of the Assessing Officer was erroneous so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order.

The Tribunal stated that the phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. It has to be remembered that every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.

The Tribunal held that issue of disallowance of expenditure of 80IA, the AO already raised the issue called for the submission and had taken a view based on the record produced. Therefore, the action of the AO cannot be subjected to proceeding u/s 263 of the Act.

Accordingly, the ITAT quashed the order passed by the PCIT and allowed the appeal of the assessee.

Download Full Judgment ABCAUS 3948 (2024) (04) ITAT Click Here >>

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