2024 (1) TMI 370 - HC - Income Tax

Revision u/s 263 - PCIT took a view that the assessee was not eligible to any deduction u/s 80IA(4)(ii) - HELD THAT - In the case of Commissioner of Income Tax (Central) Ludhiana vs Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT the Supreme Court referred to its earlier judgment in the case of Malabar Industrial Company Limited 2000 (2) TMI 10 - SUPREME COURT and reiterated that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue within the meaning of Section 263 of the Act; and that where the Income Tax Officer adopts one of the courses permissible in law and the same results in loss of revenue or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income Tax Officer is not sustainable in law. As the respondent/assessee was being allowed deduction under Section 80IA of the Act since AY 2007-08, but revenue took a U-turn by denying the benefit in AY 2010-11, that too invoking jurisdiction under Section 263 of the Act, which cannot be justified. No material was brought on record by the appellant/revenue to show that merely by migration from IP-VPN to NLD-ILD license, a new and different undertaking of the respondent/assessee within the meaning of Section 80IA(4)(ii) of the Act came into existence. As held by this court in the case of PCIT vs Verizone Communications India Pvt. Ltd 2023 (12) TMI 347 - DELHI HIGH COURT mere addition of services or expansion of the same undertaking would not take it out of the realm of Section 80IA(4)(ii) of the Act. Although PCIT did carry out an inquiry, but did not arrive at any finding challenging the sustainability of the view of the Assessing Officer. According to the settled legal position as quoted above through various judicial precedents, merely because PCIT holds a view different from that of the Assessing Officer, the jurisdiction under Section 263 of the Act cannot be invoked to substitute the view of the latter with that of the former. PCIT wrongly invoked jurisdiction under Section 263 of the Act and fell in error by taking a U-turn in fourth assessment year thereby denying benefit of Section 80IA of the Act to the respondent/assessee. Decided against revenue.

Summary

Issues Involved:
1. Scope of Section 263 of the Income Tax Act.
2. Scope of Section 80IA of the Income Tax Act.

Summary:

Scope of Section 263 of the Income Tax Act:
The appeal concerns the invocation of revisional jurisdiction under Section 263 by the Principal Commissioner of Income Tax (PCIT), who set aside the final assessment order dated 31.12.2014 passed by the Assessing Officer (AO) under Section 143(3) read with Section 144C of the Income Tax Act, 1961. The PCIT deemed the AO's order erroneous and prejudicial to the revenue's interest. The Supreme Court's precedents, including Commissioner of Income Tax (Central) Ludhiana vs Max India Ltd. and Commissioner of Income Tax, Gujarat II vs Kwality Steel Suppliers Complex, emphasize that not every loss of revenue due to an AO's order qualifies as prejudicial. The AO's order is not erroneous if it follows a permissible legal course, even if it results in revenue loss, or if two views are possible and the AO adopts one. The Tribunal found that the PCIT's invocation of Section 263 was unjustified as it was based on a mere difference of opinion without establishing the AO's view as unsustainable in law.

Scope of Section 80IA of the Income Tax Act:
The second issue revolves around the respondent/assessee's eligibility for deduction under Section 80IA of the Act. The PCIT denied the deduction for AY 2010-11, despite it being allowed in the three preceding years (AY 2007-08, AY 2008-09, and AY 2009-10). The respondent/assessee argued that its business falls under the eligible undertakings listed in Section 80IA(4)(ii), covering broadband network and internet services. The Tribunal agreed, noting that the respondent/assessee had been consistently allowed the deduction in previous years, and the PCIT's denial in the fourth year was unjustified. The Tribunal also referenced CBDT Circular No. 1/2016, which clarifies that the "initial assessment year" for claiming deduction is the first year chosen by the assessee, ensuring continuity within the prescribed period.

Factual Matrix:
The respondent/assessee, engaged in telecommunication and related services, migrated from an IP-VPN license to an NLD-ILD license in 2006, with the Department of Telecommunication (DoT) stipulating the continuation of services under the new license. The Tribunal found that this migration did not create a new undertaking under Section 80IA(4)(ii) and that the AO had allowed deductions after proper inquiries in previous years. The Tribunal cited the Supreme Court's judgment in Shasun Chemicals and Drugs Ltd vs CIT, supporting the respondent/assessee's entitlement to deductions for the subsequent period.

Conclusion:
The Tribunal upheld that the PCIT wrongly invoked Section 263 jurisdiction and erred in denying the Section 80IA deduction in the fourth assessment year. The Tribunal's order was found to be without infirmity, and the appeal was dismissed, with no substantial question of law requiring examination.