2019 (3) TMI 1454 - AT - Income Tax

Revision u/s 263 by CIT - three ground, deduction of 80IA on sale of industrial park, non disallowance u/s 14A and non examination of domestic transfer price on sale of undertaking to subsidiary - HELD THAT - It cannot be held that under the law the profit earned on sale of industrial park is not eligible for deduction u/s 80 IA Provisions of section 80IA (8) provides that, where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or to any eligible business, then consideration for such transfer should correspond to the market value of such goods as on the date of transfer. It provides that the profits and gains from transfer or sale of the eligible business should be computed as if the transfer has been made at market value of such goods or services. This provision itself clarifies that profits from transfer of the eligible business is a business income eligible for deduction u/s 80 IA. In fact, this provision endorses our view that the profits from transfer of eligible business are eligible for deduction u/s 80 IA. One very important fact in this case is that, assessee has shown entire profit from sale of industrial profit as business income and once such business income has been accepted and no adverse comment has been given by Ld. CIT, then such a profit arising from sale of industrial park ostensibly falls within section 80 IA (4). Hence, there was no legal infirmity by Assessing Officer in allowing the claim of deduction on the profits earned from the sale of industrial park. In so far as the Ld. CIT observing that Assessing Officer has failed to examine applicability of section 80 IA(8) it is seen that it is not in dispute that the Assessing Officer during the course of assessment proceedings has examined the Approved Valuer s Report who has given a detailed report of the market value of the transfer of industrial park and also transfer pricing report by the accountant has also been furnished by the assessee. Thus, when transfer price is consonance with the fair market price then conditions of this section gets satisfied. Hence applicability of section 80IA (8) has been examined by the Assessing Officer Applicability of provision of section 14A - HELD THAT - If AO is satisfied or having regard to the accounts no expenditure can be attributed then no disallowance is called for. Nothing has been brought on record by Ld. CIT that satisfaction could have been arrived having regard to the accounts maintained by the assessee that some disallowance is called for. There is no whisper by the Ld. CIT as to why disallowance u/s 14 A was called for on the facts of the case. The disallowance under section 14A is not automatic whenever there is any kind of exempt income. It has to be seen with regard to nature of expenses debited and whether any expenditure can be calculated. Thus, simple observation that AO should have examine the applicability of 14A without any specific finding or examination of facts and material on record, Ld. CIT cannot set aside the assessment. The revisionary jurisdiction u/s 263 cannot be exercised simply to make roving and fishing enquiry. Here in this case, we have already found that Assessing Officer has made proper enquiries and verification after calling for all the records and after applying his mind has allowed the deduction in accordance with law. The Ld. CIT now cannot sit on the judgment of the Assessing Officer without pointing out any legal or factual infirmity or without carrying out his own enquiry. He simply cannot set aside the order of the Assessing Officer stating that no proper enquiry has been done - Decided in favour of assessee

Summary

Issues Involved:
1. Deduction under Section 80IA of the Income Tax Act.
2. Applicability of Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.
3. Examination of specified domestic transactions and reference to Transfer Pricing Officer (TPO).

Detailed Analysis:

1. Deduction under Section 80IA of the Income Tax Act:
The assessee claimed a deduction under Section 80IA for the development and sale of an Industrial Park. The Assessing Officer (AO) allowed the deduction after detailed scrutiny. The Ld. CIT initiated revisionary jurisdiction under Section 263, alleging that the AO did not conduct substantial enquiry or investigation into the exact amount of profit earned on the sale of the Industrial Park and the eligibility of the deduction under Section 80IA. The CIT argued that every assessment year is independent and the AO failed to examine the conditions for the allowability of the deduction.

Tribunal's Findings:
- The assessee had developed an IT Park and received approval for 100% tax exemption under Section 80IA from the Ministry of Commerce and Industry.
- The AO had conducted detailed enquiries, including examining audit reports, transfer pricing documents, and valuation reports.
- The AO had allowed the deduction after verifying all relevant documents and making a part disallowance.
- The Tribunal held that the AO had conducted the necessary enquiries and applied his mind before allowing the deduction. Therefore, the CIT's observation that no enquiry was made was baseless.

2. Applicability of Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules:
The assessee earned exempt income from mutual funds and claimed that no expenditure was incurred in earning this income. The AO accepted this claim without making any disallowance under Section 14A.

Tribunal's Findings:
- The assessee provided details showing that the investments in mutual funds were made from the sale consideration of the Industrial Park and no interest-bearing funds were used.
- The AO examined the bank statements, loan repayment details, and other relevant documents before accepting the assessee's claim.
- The Tribunal held that the AO had verified the facts and found no basis for disallowance under Section 14A. The CIT's observation that the AO failed to examine this issue was incorrect.

3. Examination of specified domestic transactions and reference to Transfer Pricing Officer (TPO):
The CIT alleged that the AO failed to conduct an enquiry into the specified domestic transactions between the assessee and its subsidiary and did not refer the matter to the TPO as per CBDT guidelines.

Tribunal's Findings:
- The assessee had disclosed the specified domestic transactions in Form 3CEB and provided a valuation report to substantiate the arm's length price.
- At the time of the assessment, there were no CBDT guidelines mandating a reference to the TPO for specified domestic transactions.
- The Tribunal noted that the AO had examined the transfer pricing documentation and was satisfied with the arm's length price.
- The Tribunal concluded that the AO was not required to make a reference to the TPO under the applicable guidelines at the time of assessment.

Decision:
The Tribunal quashed the revision order passed by the CIT under Section 263, holding that the AO had conducted proper enquiries and verification before allowing the deduction under Section 80IA and accepting the assessee's claims regarding exempt income and specified domestic transactions. The Tribunal found no error or prejudice to the interest of the revenue in the AO's assessment order.