Shri. Arun Trehan, Plot v. Principal Commissioner Of Income [Tax-Ii, Chandigarh

ITA No. 240 of 2016 1 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 240 of 2016 |Date of decision: 06.09.2018 Shri. Arun Trehan, Plot No.3, limber Market, Sector 26, Chandigarh......- Appell Vs. Principal Commissioner of Income [Tax-II, Chandigarh ....KReSponden CORAM: HON’BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICEK AVNEESH JHINGAN Present: Ms. Radhika Suri, Sr. Advocate with Mr. Manpreet SinghKanda, Advocate for the appellant.Kanda, Advocate for the appellant. Ms. Urvashi Dhugga, Sr. Standing Counsel for therespondent. —respondent. — Ajay Kumar Mittal,J 1].This order shall dispose of ITA Nos. 240 of 2016 and 449 of2015 as according to the learned counsel for the parties, the issue involvedin both these appeals is identical. However, the facts are being extractedfrom ITA No.240 of 2016.. ).ITA No.240 of 2016 has been filed by the appellant-assesseeunder Section 260A of the Income Tax Act, 1961 (in short, “the Act’)against the order dated 21.03.2016, Annexure A.3 passed by the IncomeTax Appellate Tribunal, Chandigarh Bench (in short, “the Tribunal’) inITA No.9/Chd/2016, for the assessment year 2011-12. ITA No. 240 of 2016 2 3.The appeal was admitted on 15.09.2016 to consider the|following substantial questions of law:-. 1)“Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal erred in law inupholding the proceedings under Section 263 of theIncome Tax Act even though the original assessmentorder had been passed after due application of mind andafter adequate inquiry? 11)Whether on the facts and in the circumstances of thecase, the Tribunal erred in law in following its decisionin the case of Hycron Electronics without adjudicatingthe issue relating to assumption of jurisdiction underSection 263 of the Income Tax Act? 111)Whether on the facts and in the circumstances of thecase, the Tribunal erred in law in disallowing thebenefit of substantial expansion under Section 8O0IC tothe units that came into existence after 7.1.2003 bystating that initial assessment year can’t be re-fixed? Iv)Whether the Id. Income Tax Appellate Tribunal 1s rightin law and facts in holding that definition of initialassessment year does not allow the undertaking to claimdeduction under Section 80IC at the rate of 100% upontheir substantial expansion? v)Whether the order of the ld. Income Tax AppellateTribunal is perverse as the same 1s contrary to thematerial on record?” 4. |A few facts relevant for the decision of the controversy|involved as narrated in ITA No. 240 of 2016 may be noticed. Theappellant-assessee filed a return of income on 23.9.2011 for the assessmentyear 201 1-12 declaring an income of48,97,200/- after claiming deductionunder Section 8OIC. of the Act to the tune of=51,76,063/- which wasprocessed under Section 143(1) of the Act. Notice under Section 143(2) of ITA No. 240 of 2016 3 v)Whether the order of the ld. Income Tax AppellateTribunal is perverse as the same 1s contrary to thematerial on record?” 4. |A few facts relevant for the decision of the controversy|involved as narrated in ITA No. 240 of 2016 may be noticed. Theappellant-assessee filed a return of income on 23.9.2011 for the assessmentyear 201 1-12 declaring an income of48,97,200/- after claiming deductionunder Section 8OIC. of the Act to the tune of=51,76,063/- which wasprocessed under Section 143(1) of the Act. Notice under Section 143(2) of ITA No. 240 of 2016 3 the Act was served on the assessee. The Assessing Officer afterscrutinizing the accounts accepted the returned income of=8,97,200/-. TheAssessing Officer passed the assessment order accepting the claim of)deduction under Section 8O0IC of the Act by the assessee. Thereafter, thePrincipal Commissioner of Income Tax (CIT) issued a notice underSection 263 of the Act on 12.11.2015 to the assessee on the ground that the|deduction claimed under Section SOIC. of the Act was erroneous andprejudicial to the interests of the revenue and the proceedings underSection 263 of the Act were initiated against the assessee. The assessee|filed reply on 01.12.2015 which was examined by the CIT. Relying on theTribunal’s decision in the case of M/s Hycron Electronics Baddi, the order|passed by the Assessing Officer was revised in exercise of Jurisdictionunder Section 263 of the Act. The CIT cancelled the order dated31.01.2014 Annexure A.1l, passed by the Assessing Officer and directedhim to pass a fresh order in accordance with law. The assessee filed anappeal before the Tribunal. Vide order dated 21.03.2016, Annexure A.3,the Tribunal concluded that the Assessing Officer had allowed thededuction under Section 8Q0IC of the Act without any inquiry. The Tribunalby following its own decision in the case ofM/s Hycron Electronics(supra) upheld the order passed by the CIT. Hence the instant appeals bythe appellant-assessee. 5.We have heard learned counsel for the parties. 6.Questions No. (i) & (11) as claimed by the assessee relate toassumption of jurisdiction under Section 263 of the Act by the CIT.Questions No. (iii) & (iv) are on the merits of the controversy relating toadmissibility of deduction under Section 80IC of the Act in case of substantial expansion undertaken by the assessee. Question No. (v) as.claimed is general in nature and, therefore does not arise.| JoAdverting to questions No. (1) & (11) first, which relate to theassumption of jurisdiction by the CIT under Section 263 of the Act, itwould be expedient to reproduce Section 263 (1) of the Act which 1srelevant for our purpose : *263(1)The Principal Commissioner or Commissioner maycall for and examine the record of any proceeding under this|Act, and if he considers that any order passed therein by'theAssessing Officer is erroneous in so far as it 1s prejudicialto the interests of the revenue, he may, after giving the|assessee an opportunity of being heard and after making or'causing to be made such inquiry as he deems necessary, pass|such order thereon as the circumstances of the case justify,|including an order enhancing or modifying the assessment, or|cancelling the assessment and directing a fresh assessment. Explanation.- XxxXxxxxxx” 8 |A bare perusal of Section 263 of the Act makes it clear that|before the CIT passes any order, an opportunity of hearing 1s required to beprovided to the assessee and thereafter, prima facie finding recorded thatthe order made by the Assessing Officer 1s erroneous in so far as it 1s.prejudicial to the interests of the revenue. Power under Section 263 of the Act can be exercised in relation to a proceeding in which the AssessingOfficer has passed an erroneous order prejudicial to the interests of theRevenue. The law envisages fulfillment of following conditions forassumption ofjurisdiction under Section 263 of the Act:- (a) such order should be erroneous ; Explanation.- XxxXxxxxxx” 8 |A bare perusal of Section 263 of the Act makes it clear that|before the CIT passes any order, an opportunity of hearing 1s required to beprovided to the assessee and thereafter, prima facie finding recorded thatthe order made by the Assessing Officer 1s erroneous in so far as it 1s.prejudicial to the interests of the revenue. Power under Section 263 of the Act can be exercised in relation to a proceeding in which the AssessingOfficer has passed an erroneous order prejudicial to the interests of theRevenue. The law envisages fulfillment of following conditions forassumption ofjurisdiction under Section 263 of the Act:- (a) such order should be erroneous ; (b) and it should be prejudicial to the interests of the revenue. | In other words, two circumstances must exist to enable the Commissionerto exercise power of revision under Section 263, viz., (a) the order 1serroneous; (b) by virtue of the order being erroneous, prejudice has been|caused to the interests of the revenue. Wherever one of them is absent - if.the order of the assessing officer 1s erroneous but 1s not prejudicial to the|interests of the revenue or if it 1s not erroneous but 1s prejudicial to theinterests of the revenue - assumption of revisional jurisdiction underSection 263 of the Act would not be proper. | QThe object of the enactment of the aforesaid provision is to|correct an order which is prejudicial to the interests of the revenue. Thepurpose behind incorporating this provision in the statute 1s to ensure thatinterests of the revenue 1s safeguarded by an erroneous order passed by theAssessing Officer as the Department has no right to file an appeal againstthe order of the Assessing Officer. It 1s not the power as a substitute for thepower of the Assessing Officer to make assessment whereas the revisionalpower under Section 263 of the Act 1s certainly available where the orderof the Assessing Officer 1s erroneous and prejudicial to the interests of therevenue. There is no strait jacket formula for categorizing an order to beerroneous and prejudicial to the interests of the revenue but depends uponthe facts of each case. 10.Section 263 of the Act had been matter of legal interpretationin numerous decisions. The Apex Court in)Malabar [Industrial Co.Limited vs. CIT, (2000) 243 ITR 83 observed as under:- "7. There can be no doubt that the provision cannot beinvoked to correct each and every type of mistake or errorcommitted by the Assessing Officer; it is only when anorder 1S erroneous that the section will be attracted. An/incorrect assumption of facts or an incorrect application of ITA No. 240 of 2016 6 law will satisfy the requirement of the order beingerroneous. In the same category falls orders passed withoutapplying the principles of natural justice or withoutapplication of mind.” 11.)The primary contention of learned counsel for the assessee|was that where two views are possible, then in that situation to exerciserevisional power under Section 263 of the Act would be conferring an)appellate power to be exercised by the revenue against the order of the)Assessing Officer which 1s not permissible under the statute. Support was|gathered from the following observations of the Apex court in)CIT vs.Amitabh Bachhan, (2016) 384 ITR 200:- “21. There can be no doubt that so long as the view takenby the Assessing Officer is a possible view the sameought not to be interfered with by the Commissionerunder Section 263 of the Act merely on the ground thatthere 1s another possible view of the matter. Permittingexercise of revisional power in a situation where twoviews are possible would really amount to conferringsome kind of an appellate power in the revisionalauthority. This is a course of action that must be desistedfrom.’ Reliance was also placed on the decision in Malabar [Industrial Co. ’s cas(supra) andCIT vs. Max India Limited,(2007) 295 ITR 282. _ “21. There can be no doubt that so long as the view takenby the Assessing Officer is a possible view the sameought not to be interfered with by the Commissionerunder Section 263 of the Act merely on the ground thatthere 1s another possible view of the matter. Permittingexercise of revisional power in a situation where twoviews are possible would really amount to conferringsome kind of an appellate power in the revisionalauthority. This is a course of action that must be desistedfrom.’ Reliance was also placed on the decision in Malabar [Industrial Co. ’s cas(supra) andCIT vs. Max India Limited,(2007) 295 ITR 282. _ 12._The legal position expounded above is unexceptionable.|However, the applicability of these principles would depend upon factsfrom case to case. A perusal of the assessment order passed by theAssessing Officer under Section 143(3) of the Act shows that the returnedincome of the assessee at.L8,97,200/- was accepted. However, the CIT)while exercising revisional jurisdiction under Section 263 of the Act expressly noted regarding the claim of the assessee @ 100% deduction under Section SOIC. of the Act as under:- 13. **3. From the perusal of the assessment record, it has been|noticed that the initial year for claiming deduction underSection 80IC is assessment year 2006-07. Accordingly, youwere eligible for claiming 100% deduction upto next fiveyears i.e. till assessment year 2010-11 and _ thereaftededuction under Section 80IC was to be allowed @ 25% fornext five assessment years. You have claimed 100% deductionin assessment year 2011-12 on the basis of substantialexpansion undertaken in the firm M/s M&A Industries duringfinancial year 2010-11. The commercial activities in the firmM/s M&A Industries were started in the financial year 2005-06 and 100% deduction under Section SOIC of the Act is to be |allowed only to those concerns which were in existence beforecoming in force the provisions of Section 8O0IC 1.e. before1.4.2004. The issue has not been taken up by the Assessing|Officer while framing the assessment under Section 143(3) ofthe IT Act. Hence the issue remains unexplained on your partand unexamined on the part of the Assessing Officer. 5. In view of the facts stated above, it is held that the)assessment framed under Section 143(3) on 31.1.2014 1serroneous in so far as prejudicial to the interest of the revenue.You are, therefore, requested to show cause as to whyassessment framed vide assessment order dated 31.1.20124|under Section 143(3) of the Income Tax Act, 1961 should notbe cancelled by invoking the provisions of section 263 of theIncome Tax Act, 1961.” After hearing the response of the authorized representative of the assessee, the CIT noted that the only issue in the case was regardingpercentage of profit and gains from eligible unit which was to be allowedas deduction under Section 80IC of the Act after five years wheresubstantial expansion has been carried out during the period relating to the ITA No. 240 of 2016 8 assessment year 2011-12. The conclusion recorded in the revisional order 1S as under:- ‘In view of the clear position of law the assessee was entitledfor 25% and not 100% of the profit and gains of the unit forwhich initial year was assessment year 2006-07. This positionof law has also been held by the Hon’ble ITAT, Chandigarh inits decision dated 27.5.2015 deciding twenty appeals througha composite order 1n the lead case of M/s Hycron ElectronicsBadd,SolanVs,ITO,Ward2,Baddi1n|TTANo.798/Chd/2012. However, in the instant case the AO did)not apply the correct provision and allowed hundred percentof the profit and gains as deduction under Section 80ICmaking the order patently erroneous as well as prejudicial tothe interest of revenue. This action of the Assessing Officer inallowing 100 per cent deduction after 5[th]year or any of thesubsequent assessment year of the initial year might set a badtrend or pattern for similar assessments.” 14. _In the present case, the claim of the assessee for 100%|deduction under Section 80IC of the Act after the expiry of initial fiveyears from assessment year 2006-07 when the commercial activities in thefirm M/s M&A Industries were started, whereas substantial expansion wascarried out during the period relating to assessment year 2011-12 was notadmissible. The Assessing Officer had not expressed any view in thatbehalf as 1s discernible from the assessment order. Moreover, the Tribunal1n the case ofM/s Hycron Electronics’scase (supra) had also held similarissue against the assessee. No doubt, the Himachal Pradesh High Court didexpress contrary view in appeal against the said decision of the Tribunalwhich was reversed by the Apex court 1nCommissioner of Income Tax|Vs. M/s Classic Binding Industries, Civil Appeal No(s) 7208 of 2018decided on 20.08.2018. | Thus, contention of the assessee that where two views are possible,recourse to proceedings under Section 263 of the Act 1s unwarranted, doesnot come to his rescue in the present factual matrix as noticedhereinbefore. 15.Adverting to question Nos.(111) and (iv) on the merits of the|controversy regarding claim of 100% deduction under Section 80IC of theAct for the assessment year 2011-12 when the industrial unit had been setup in the financial year 2005-06 relating to assessment year 2006-07, itcould not be disputed that the matter is no longerres integraand 1sconcluded by the decision of the Apex court inClassic BindingIndustries ’cas(supra) against the assessee and 1n favour of the revenue. 16.|In view of the above, the substantial questions of law claimed|by the assessee are answered accordingly. Consequently, both the appealsstand dismissed. | September 06, 2018. (Ajay Kumar Mittal) sudge > (Avneesh Jhingan) Whether speaking/reasoned Judge |Yes Whether reportable Yes In the present case, undisputedly the appellant-assessee filed its income taxreturn on 23.09.2011 for the assessment year 2011-12 declaring an incomeof|48,97,200/- after claiming deduction under Section 80IC of the Act tothe tune ofL51,76,063/-. Accordingly, the return was processed underSection 143(1) of the Act. Notice was issued to the appellant-assessee|under Section 143(2) of the Act. The Assessing Officer passed theassessment order dated 31.01.2014 accepting the returned income of48,97,200/-. Thereafter, CIT on 12.11.2015 issued a notice to the assesseeunder Section 263 of the Act on the ground that the deduction claimed|under Section 80IC of the Act was erroneous and, thus, proceedings underSection 263 of the Act were initiated against the assessee. The assessee|filed reply which was examined by the CIT. The CIT replied upon theearlier decision taken by the Tribunal in the case of|M/s HycronElectronics Baddi, and revised the order passed by the Assessing OfficerIn exercise of jurisdiction under Section 263 of the Act. The Tribunalupheld the order passed by the CIT. Hence, the present appeals.