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2013 (12) TMI 184 - AT - Income TaxValidity of proceedings u/s 263 The net income had been shown at Rs. 3,43,51,89,619. Against this income the company has claimed brought forward unabsorbed depreciation for the earlier years amounting to Rs.35,58,19,560 - The company has claimed deduction under section 80-IA (100 per cent.) amounting to Rs. 307,93,70,059 and the taxable income has been shown as nil - The Assessing Officer accepted the returned income of the assessee The assessment order was passed under section 143(3) dated September 3, 2007 - Held that - No inquiry or investigation was made by the Assessing Officer while considering the eligibility of claim of deduction under section 80-IA of the Act in the hands of the assessee - The fulfilment of the various conditions laid down under section 80-IA of the Act including the provisions of sub-sections (2), (2A) and (4)(ii) of section 80-IA of the Act, were not considered and adjudicated upon by the Assessing Officer - The assessment order passed by the Assessing Officer is without making any investigation and without application of mind in granting the deduction under section 80-IA of the Act, both on the profits of the business and also on the interest income and other income earned by the assessee The order of the Assessing Officer did not show the verification of closing stock, purchases and transportation and other items mentioned above Decided against assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act. 2. Validity of the order passed by the Commissioner of Income-tax. 3. Eligibility for deduction under Section 80-IA of the Income-tax Act. 4. Examination of interest income and miscellaneous receipts for eligibility under Section 80-IA. Detailed Analysis: 1. Jurisdiction under Section 263 of the Income-tax Act: The primary issue was whether the Commissioner of Income-tax (CIT) had correctly assumed jurisdiction under Section 263 of the Income-tax Act, 1961. The CIT initiated proceedings under Section 263 by issuing a show-cause notice to the assessee, questioning the assessment order dated September 3, 2007, passed by the Assessing Officer (AO). The CIT found the assessment order to be non-speaking, without proper appreciation of facts and record, and without due application of mind. It was observed that the AO had not conducted proper inquiries, especially regarding the assessee's claim for deduction under Section 80-IA. The CIT concluded that the order was erroneous and prejudicial to the interests of the Revenue. 2. Validity of the Order Passed by the Commissioner of Income-tax: The CIT's order was challenged by the assessee on the grounds that the initiation of proceedings under Section 263 was based on incorrect assumptions and lacked objective satisfaction. The CIT, however, held that the AO had not applied his mind while allowing the deduction under Section 80-IA. The CIT emphasized that the AO had not raised any queries regarding the eligibility of the deduction and had mechanically allowed it. The CIT also noted that the AO failed to verify the date of commencement of business operations, which was crucial for determining the eligibility for deduction under Section 80-IA. 3. Eligibility for Deduction under Section 80-IA of the Income-tax Act: The assessee claimed that it was eligible for deduction under Section 80-IA, as it had commenced providing telecommunication services post-April 1, 1995. The CIT, however, found discrepancies in the dates provided by the assessee. The CIT observed that the assessee had claimed to have set up its business in the assessment year 1992-93 but had not commenced operations until the assessment year 1996-97. The CIT also noted that the AO had not verified whether the business was new or formed by splitting up or reconstruction of an existing business. The CIT concluded that the assessee was not eligible for deduction under Section 80-IA, as the block period of 10 years had already expired in the assessment year 2004-05. Alternatively, the deduction was to be restricted to 30% for the assessment year 2005-06. 4. Examination of Interest Income and Miscellaneous Receipts for Eligibility under Section 80-IA: The CIT also examined the assessee's claim for deduction under Section 80-IA on interest income and miscellaneous receipts. The interest income of Rs. 6.09 crores was earned on the temporary deployment of surplus funds generated from the telecommunication business. The CIT held that this interest income was not directly attributable to the business activities and, therefore, not eligible for deduction under Section 80-IA. Similarly, the miscellaneous receipts amounting to Rs. 4.98 crores were also held not to be derived from the eligible business and thus not eligible for deduction under Section 80-IA. Conclusion: The Tribunal upheld the CIT's order under Section 263, confirming that the AO had failed to make proper inquiries and had passed the assessment order without application of mind. The Tribunal agreed with the CIT that the assessment order was erroneous and prejudicial to the interests of the Revenue. However, the Tribunal modified the CIT's conclusion, directing the AO to decide the issue afresh, uninfluenced by the CIT's observations that the assessee was not entitled to the deduction under Section 80-IA. The AO was instructed to re-examine the eligibility for deduction under Section 80-IA and pass a fresh assessment order after affording a reasonable opportunity of hearing to the assessee. The assessee's appeal was dismissed.
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