2018 (2) TMI 1515 - AT - Income Tax

Revision u/s 263 - deduction u/s 80IA (4) (i) not allowable to the assessee as the assessee was only an operating company and not an enterprise engaged in the business of infrastructure development - Held that - It is clear that an order cannot be termed as erroneous unless it is not in accordance with law - a certain assessment, the same cannot be branded as erroneous by the Ld. Principal Commissioner simply because, according to him, the order should have been written more elaborately. Section does not visualize a case of substitution of the judgment of the Commissioner for that of the AO - in the instant case the AO s order was erroneous and prejudicial to the interest of the revenue within the terms of section 263. Once the said claim was considered and examined by the Assessing Officer, Commissioner cannot set aside the order without recording contrary finding. This will be contrary to Section 263 of the Act. The year under consideration in the fourth consecutive year in which the assessee had claimed deduction u/s 80IA. It is a matter of record that the assessee s claim was accepted by the AO for Assessment Years 2008-09 and 2009-10 by orders passed u/s 143(3) of the Act. It is also a matter of record that there is no change in the facts this year as compared to the earlier assessment years. The Hon ble Apex Court in the case of Shasun Chemicals and Drugs Ltd. vs. CIT (2016 (9) TMI 1199 - SUPREME COURT OF INDIA), while adjudicating an issue relating to section 35D, held that where a benefit is allowed to the assessee for first two assessment years, the same cannot be denied in the subsequent block period as once the claim of the assessee was accepted and the clock had started running in favour of the assessee, it had to complete the entire period of ten years. The same analogy can be applied to provisions of section 80IA also. CIT, on the facts of the case, at best can be termed as having a different view from that of the AO. CIT has not brought on record any finding as to why the view of the AO was not legally sustainable. In our considered opinion, section 263 does not envisage the substitution of the view of the AO by the view of the Ld. Pr. CIT especially when there is no legal infirmity in the view taken by the AO. Impugned action of the Ld. CIT u/s 263 of the Act was patently illegal and liable to be quashed. The proceedings u/s 263 of the Act are accordingly quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of total assessed income and omissions in the assessment order.
2. Eligibility for deduction under section 80IA(4)(i) of the Income Tax Act.
3. Impact of migration from IP-VPN license to NLD/ILD license on eligibility for deduction under section 80IA(4)(ii).
4. Determination of the initial assessment year for claiming deduction under section 80IA.
5. Legality of the Principal Commissioner of Income Tax (Pr. CIT) invoking section 263 of the Income Tax Act.

Detailed Analysis:

1. Determination of Total Assessed Income and Omissions in the Assessment Order:
The Pr. CIT identified omissions in the assessment order, which led to the wrong determination of total assessed income. The Tribunal noted that the AO had made extensive inquiries during the assessment proceedings and had examined the assessee’s claim for deduction under section 80IA. The Tribunal emphasized that an order cannot be termed erroneous unless it is not in accordance with the law. The AO’s assessment, which included inquiries and examination of the claim, was not considered erroneous merely because it lacked detailed reasoning.

2. Eligibility for Deduction under Section 80IA(4)(i):
The Pr. CIT argued that the assessee was not eligible for deduction under section 80IA(4)(i) as it was only an operating company rendering networking services and not engaged in infrastructure development. The Tribunal, however, noted that the assessee had been allowed the deduction in the previous three assessment years and that the AO had duly verified the claim. The Tribunal concluded that the Pr. CIT’s opinion was a mere change of opinion and did not fall within the scope of section 263, which requires the order to be erroneous and prejudicial to the interest of revenue.

3. Impact of Migration from IP-VPN License to NLD/ILD License:
The Pr. CIT contended that the migration from IP-VPN license to NLD/ILD license disqualified the assessee from claiming the deduction under section 80IA(4)(ii). The Tribunal observed that the assessee had commenced providing telecommunication services before March 31, 2005, under the IP-VPN license and continued to provide the same services after migrating to the NLD/ILD license. The Tribunal held that the migration did not create a new undertaking and that the same infrastructure and personnel were used. Therefore, the Pr. CIT’s contention was incorrect.

4. Determination of the Initial Assessment Year for Claiming Deduction under Section 80IA:
The Pr. CIT argued that the initial assessment year should be the year in which the business commenced, not the year when the assessee became eligible for the deduction. The Tribunal referred to section 80IA(2), which allows the deduction for any ten consecutive years out of fifteen years from the year the enterprise starts providing services. The Tribunal also cited a CBDT Circular supporting the assessee’s position. The Tribunal concluded that the Pr. CIT’s interpretation was contrary to the provisions of the Act and the circular.

5. Legality of the Pr. CIT Invoking Section 263:
The Tribunal emphasized that section 263 requires the order to be erroneous and prejudicial to the interest of revenue. It noted that the AO had conducted inquiries and accepted the assessee’s claim after being satisfied with the explanation. The Tribunal cited several judicial precedents, including CIT vs. Sunbeam Auto Ltd. and ITO vs. DG Housing Projects Ltd., to establish that an order cannot be termed erroneous if the AO had applied his mind and conducted inquiries. The Tribunal concluded that the Pr. CIT’s invocation of section 263 was not justified as the AO’s order was not erroneous or prejudicial to the interest of revenue.

Conclusion:
The Tribunal quashed the proceedings under section 263, holding that the Pr. CIT’s action was illegal. It upheld the AO’s assessment, allowing the assessee’s appeal. The stay application was dismissed as infructuous. The order was pronounced in the open court on January 29, 2018.