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2019 (11) TMI 798 - AT - Income TaxRevision u/s 263 - deduction claimed u/s 80-IC - gain from exchange fluctuation - gain on account of unclaimed balance - nature of Insurance claim and export incentives - HELD THAT - The present case that the AO had specifically enquired about the allowability of the deduction claimed u/s 80-IC in respect of the profits derived from manufacturing unit situated in EldecoSidcul Industrial Park of State of Uttaranchal, and upon examining the reply furnished by the assessee AO framed the assessment order u/s. 143(3) dated 28.03.2016. In view of judicial pronouncements discussed supra, we thus note that the AO has passed the assessment order after calling for details on the issues found fault by the PCIT and after considering the reply and documents filed before him passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. CIT s finding fault with the order of the AO as erroneous as well as prejudicial to the interest of revenue on account of lack of inquiry has to fail. Whether the decision of the AO, after perusal of the reply of the assessee in respect of deduction u/s. 80IC of the Act, can be held to be unsustainable in law or whether can it be said to be a plausible view? - HELD THAT - Export incentives, by whatever name called, given by the Government is with a view to incentivize and reduce the effective cost of production of the assessee. There is essentially no element of profit derived from export incentives, but it is meant to reduce the cost of production. Case of CIT Vs Meghalaya Steels Ltd 2016 (3) TMI 375 - SUPREME COURT wherein one of the questions before the Apex Court was whether insurance subsidy received from the Government could be said to be derived from the industrial undertaking and hence considered for the purposes of computing deduction u/s 80IC as observed that the insurance subsidy was given to subsidize the cost of insurance premium incurred by the assessee in relation to the premises as well the stock manufactured at the eligible Unit. Accordingly the Court observed that such subsidy being relatable to the cost of production of the Unit had direct first degree nexus with the business of the eligible undertaking and therefore was held to be eligible for computation of deduction u/s 80IC We are of the considered opinion that while passing the assessment order allowing the deduction u/s 80IC in respect of items of other income and export incentives, the AO did not follow a view which can be said to be unsustainable in law . In the circumstances therefore, the jurisdictional facts for usurping the jurisdiction, being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction and all subsequent actions are 'null' in the eyes of law. We therefore quash the order impugned before us. - Decided in favour of assessee
Issues Involved:
1. Legality of the revision order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income Tax Act, 1961. 2. Examination of the Assessing Officer's (AO) inquiry and assessment regarding the deduction claimed under Section 80IC of the Income Tax Act. 3. Determination of whether the AO’s order was erroneous and prejudicial to the interest of the revenue. 4. Analysis of specific items of income and their eligibility for deduction under Section 80IC. Issue-wise Detailed Analysis: 1. Legality of the Revision Order by Pr. CIT Under Section 263: The appeal is against the revision order passed by the Pr. CIT, who exercised powers under Section 263 of the Income Tax Act, 1961, setting aside the AO's assessment order for the Assessment Year (AY) 2013-14. The Pr. CIT found the AO's order erroneous and prejudicial to the interest of the revenue due to lack of proper inquiry into the deductions claimed under Section 80IC. 2. Examination of AO's Inquiry and Assessment Regarding Deduction Under Section 80IC: The assessee claimed deductions under Sections 80IC and 80IA. The AO issued several requisitions under Section 142(1) and received detailed replies from the assessee. The AO completed the assessment under Section 143(3), allowing the deductions claimed. The Pr. CIT, however, found that the AO did not adequately inquire into the eligibility of the deductions under Section 80IC, specifically regarding various items of income such as interest, exchange differences, provision for doubtful receivables, unclaimed balances, insurance claims, and export incentives. 3. Determination of Whether the AO’s Order Was Erroneous and Prejudicial to the Interest of the Revenue: The Pr. CIT argued that the AO's order was erroneous due to lack of sufficient inquiry and verification, making it prejudicial to the interest of the revenue. The Pr. CIT cited several judicial pronouncements, emphasizing that inadequate investigation by the AO could lead to an erroneous and prejudicial order. The Tribunal, however, noted that the AO had issued specific queries regarding the deductions and received detailed responses from the assessee, indicating that the AO had applied his mind and conducted an inquiry. 4. Analysis of Specific Items of Income and Their Eligibility for Deduction Under Section 80IC: - Interest Income: The interest income was from security deposits with the electricity department, which the Tribunal found to have a direct nexus with the business of the eligible undertaking. The Tribunal cited judicial precedents supporting the view that such interest income qualifies for deduction under Section 80IC. - Exchange Differences: The exchange differences arose from export/import transactions and translation of outstanding dues. The Tribunal held that these differences are directly related to the business activities of the eligible undertaking and qualify for deduction under Section 80IC. - Provision for Doubtful Receivables/Advances Recovered/Written Back: The Tribunal noted that the provisions written back were already excluded from the computation of eligible profits, thus not affecting the deduction under Section 80IC. - Unclaimed Balances Adjusted: These balances related to trading liabilities accounted for in earlier years. The Tribunal held that the write-back of such liabilities is eligible for deduction under Section 80IC. - Insurance and Other Claims: The insurance claims pertained to breakage losses in transit of finished goods. The Tribunal found that these claims have a direct nexus with the business of the eligible undertaking, qualifying for deduction under Section 80IC. - Export Incentives: The Tribunal analyzed various export incentives like DEPB, Focus Product License, and Status Holder License, concluding that these incentives reduce the cost of production and have a direct nexus with the business of the eligible undertaking, thus qualifying for deduction under Section 80IC. Conclusion: The Tribunal concluded that the AO had conducted an inquiry and applied his mind while allowing the deductions under Section 80IC. The Tribunal found that the AO's view was plausible and sustainable in law. Therefore, the Pr. CIT's revision order under Section 263 was without jurisdiction and was quashed. The appeal of the assessee was allowed.
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