2017 (12) TMI 1734 - AT - Income Tax

Revision u/s 263 - an order which is erroneous and prejudicial to revenue - Deduction U/s 80IA - Objection raised by CAG - Irregular allowance of deduction u/s.80IA in respect of Power Plant unit SBU 2 (2 X 300MW), which were earlier owned by JSW (Vijaynagar) Ltd. and then transferred to assessee company as a result of merger. - Irregular allowance of deduction u/s. 80IA in respect of the amount of income enhanced u/s.92CA of the Act (on account of TP adjustment. - Held that - Ld. PCIT cannot assume jurisdiction u/s. 263 of the Act on the issue of TP Adjustment and disallowance u/s. 14A r.w. Rule 8D which were already subject matter of the appeal before the Ld.CIT(A). - Assessment Order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue in so far as these two issues are concerned. - Decided in favor of assessee. Deduction U/s 80IA regarding power plant - post merger - revision u/s 263 - Held that - the Ld.PCIT failed to demonstrate with reasons that the Assessment Order was erroneous and prejudicial to the interest of the Revenue not only that, the Ld.PCIT failed to address the objections of the assessee on the issues which explained that why the order sought to be revised is not erroneous and prejudicial to the interest of the Revenue. In the case on hand also the Ld.PCIT merely extracted the objections of the assessee and he could not explain why the objections were wrong and lead to the Assessment Order being erroneous and prejudicial to the interest of the Revenue and rather he has simply rested his decision by observing that the Assessing Officer in the subsequent year examined the claim of the assessee and made disallowance and therefore order passed is erroneous and prejudicial to the interest of the Revenue. The claim for deduction u/s. 80IA is to be allowed in the assessment years subsequent to the initial Assessment Year the expected enquiries which could have been made by the Assessing Officer is to call for the computation of profits for the units eligible for 80IA and the units not eligible for 80IA which exactly has been done by the Assessing Officer in the course of Assessment Proceedings for search assessments for the Assessment Years 2005-06 to 2011-12 in order to satisfy himself that the claim of the assessee is in order. Therefore, it cannot be said that the Assessing Officer has not made proper enquiries and there is no application of mind by the Assessing Officer. There is merit in the contentions of the assessee that the revision order passed by the Ld.PCIT for the year under consideration is beyond the scope of section 263 and hence not valid in so far as the action of the Assessing Officer in allowing the claim for deduction u/s. 80IA in respect of SBU 2 unit. - Decided in favor of assessee.

Summary

Issues Involved:
1. Irregular allowance of deduction u/s 80IA on enhanced income due to disallowance u/s 14A.
2. Irregular allowance of deduction u/s 80IA on enhanced income due to disallowance u/s 92CA.
3. Irregular allowance of deduction u/s 80IA in respect of income other than income derived from eligible sources.
4. Irregular allowance of deduction u/s 80IA of Power Plant unit SBU 2 (2 X 300MW).

Detailed Analysis:

1. Irregular allowance of deduction u/s 80IA on enhanced income due to disallowance u/s 14A:
The assessee argued that the disallowance u/s 14A, which was debited against income from the eligible unit, should result in enhanced deduction u/s 80IA. The CIT(A) and ITAT in earlier years had allowed this ground. The Tribunal found that since the issue was already considered by the CIT(A), the PCIT could not exercise jurisdiction u/s 263 on this matter. The Tribunal relied on the decision of the Hon'ble Jurisdictional High Court in Ranka Jewellers v. Addl. CIT [328 ITR 148].

2. Irregular allowance of deduction u/s 80IA on enhanced income due to disallowance u/s 92CA:
The assessee contended that the proviso to section 92C(4) does not mandate reducing the deduction claimed by the amount of addition made u/s 92CA. The CIT(A) had deleted the entire addition related to TP adjustment. The Tribunal held that since the issue was decided by the CIT(A), it could not be revised u/s 263, citing the same High Court decision.

3. Irregular allowance of deduction u/s 80IA in respect of income other than income derived from eligible sources:
The PCIT argued that the AO should have restricted the deduction u/s 80IA to the extent of business income. The assessee claimed that losses of ineligible units should not be set off against profits of eligible units. The Tribunal noted the settled position of law that such losses are not to be set off from the profits of eligible units, supported by the Bombay High Court decisions in CIT v. Triodas Laboratories Ltd (328 ITR 448) and CIT v. Eskay Knit India Ltd. The Tribunal held that the AO had taken a possible view, and such an order could not be revised u/s 263.

4. Irregular allowance of deduction u/s 80IA of Power Plant unit SBU 2 (2 X 300MW):
The PCIT contended that the power plant units were transferred under a merger after 1.4.2007, and hence, deduction u/s 80IA was not available. The assessee argued that the units were under construction at the time of merger and were commissioned by the assessee post-merger. The Tribunal found that the AO had examined the issue thoroughly in the initial year of claim (AY 2010-11) and allowed the deduction. The Tribunal held that the PCIT had not demonstrated how the AO's order was erroneous and prejudicial to the interests of the revenue. The Tribunal emphasized that the PCIT must conduct an enquiry and establish that the AO's order was not sustainable in law, which was not done in this case.

Conclusion:
The Tribunal set aside the PCIT's order on issues 1, 2, and 4, holding that the AO's order was neither erroneous nor prejudicial to the interests of the revenue. However, the Tribunal upheld the PCIT's order on issue 3, directing the AO to compute the allowable deduction u/s 80IA in accordance with section 80A after necessary enquiries. The appeal was partly allowed.