2018 (11) TMI 642 - AT - Income Tax

Revision u/s 263 - deduction claimed u/s 80IC - CIT has landed and suspicion due to less profit in Vijayawada unit and substantial profit in Rudrapur unit - Held that - After having examined the details of expenditure and claim made by the assessee at the time of original assessment, there is no reason to suspect the correctness of the claim of the assessee. Merely because of percentage of profit is less in Vijayawada unit and more in Rudrapur plant the assessment made under section 143(3) cannot be held as erroneous. Though CIT was of the view that the assessee has not debited any expenditure in respect of managerial remuneration and less expenditure in the case of power and fuel and NIL expenditure in the case of labour, the same was explained by the assessee stating that no excess expenditure was incurred by the assessee after commencement of Rudrapur plant in respect of managerial remuneration. Similarly, in the case of labour expenditure, the assessee has categorically stated that there was no expenditure relating to the Rudrapur plant. The reason for difference in power & fuel expenses was explained by the assessee stating that Vijayawada unit is supported by backup of DG sets and it was operating electrical flameless furnaces for Vijayawada unit. CIT should not have take up the case for revision basing on the additions made in Assessment Years 2011-12. Each A. Yr. is independent and record also is separate. AO has called for all the details necessary before allowing the deduction under section 80IC and there is no error in the assessment order. The Ld. Pr. CIT was unable to specify any issue which made the assessment as erroneous or prejudicial to the interests of the Revenue - decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order under section 263 of the Income Tax Act for the Assessment Year 2012-13.
2. Examination of the deduction claimed by the assessee under section 80IC of the Income Tax Act, 1961.
3. Alleged discrepancies in the allocation of expenses between different units of the assessee.

Issue-wise Detailed Analysis:

1. Validity of the order under section 263 of the Income Tax Act for the Assessment Year 2012-13:
The Principal Commissioner of Income Tax (Pr. CIT) invoked section 263, arguing that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Pr. CIT observed that the Assessing Officer (AO) had not properly examined certain issues related to the deduction claimed under section 80IC. The Pr. CIT issued a show-cause notice and subsequently passed an order under section 263. The Tribunal, however, found that the AO had indeed scrutinized the details during the assessment proceedings and had called for all necessary information. The Tribunal held that the Pr. CIT's reliance on the previous year's additions was misplaced, as each assessment year is independent. Therefore, the Tribunal quashed the order under section 263, finding no error that was prejudicial to the interests of the Revenue.

2. Examination of the deduction claimed by the assessee under section 80IC of the Income Tax Act, 1961:
The assessee claimed a deduction under section 80IC for its Rudrapur plant. The AO allowed this deduction after scrutinizing the details provided by the assessee, including the report under section 10CCB. The Pr. CIT later questioned the correctness of this deduction, suspecting that the assessee had shifted expenses from the Rudrapur unit to other taxable units to inflate the profit of the Rudrapur plant. The Tribunal noted that the AO had examined the claim in detail during the original assessment, including the separate books of accounts maintained for the Rudrapur unit. The Tribunal found no basis for the Pr. CIT's suspicion and upheld the AO's original decision to allow the deduction.

3. Alleged discrepancies in the allocation of expenses between different units of the assessee:
The Pr. CIT observed discrepancies in the allocation of expenses such as managerial remuneration, labor charges, power and fuel costs, and finance costs between the Rudrapur and Vijayawada units. The Pr. CIT suspected that the assessee had allocated more expenses to the Vijayawada unit, resulting in lower profits for that unit and higher profits for the Rudrapur unit, which was eligible for the section 80IC deduction. The assessee provided detailed explanations for these discrepancies, citing reasons such as differences in manufacturing processes, plant capacities, and operational costs. The Tribunal found that the AO had examined these explanations and the related documents during the assessment proceedings. The Tribunal concluded that the Pr. CIT's concerns were unfounded and that the AO had conducted a thorough examination of the expenses.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under section 263, finding that the AO had properly scrutinized the assessee's claim for deduction under section 80IC and that there were no errors in the assessment order that were prejudicial to the interests of the Revenue. The appeal filed by the assessee was allowed.