2024 (11) TMI 860 - AT - Income Tax

Revision u/s 263 - As per CIT AO had failed to carry out necessary inquiries and verification on the issue of verification of apportionment of expenses between eligible unit claiming deduction u/s 80IA(4)(iv) and non-eligible unit - HELD THAT - It is evident that the appellant maintains separate records for Unit I and Unit II. Additionally, proper records were submitted to both the TPO and the AO. The appellant utilizes SAP for its accounting, ensuring a complete demarcation of each unit. Furthermore, the appellant has been granted deductions under Section 80IA in previous years, and thus, it cannot be alleged for the year under consideration that separate books of accounts were not maintained for eligible units, especially given that the same SAP software was used in those prior years. Accordingly, the ground raised by the appellant is hereby allowed. AR argued that the assessment u/s 143(3) was completed after detailed enquiry and examination of books of account - The assessments for the earlier assessment years specifically, AY 2012-13, 2013-14, 2014-15, and 2015-16 were conducted by the department with the acceptance of the fact that the assessee maintained separate books of accounts for both the Units. It is noted that these separate books of accounts were submitted during the assessment proceedings and also before the Principal Commissioner of Income Tax (PCIT) concerning the specified Unit II. Additionally, Form 10CCB, in conjunction with Rule 18BBB as per Section 80IA(7), along with a standalone balance sheet, was also submitted to the Assessing Officer (AO). Moreover, separate disallowances required as per income tax for the specified unit for the year ending March 31, 2017. The cost sheets, along with the standalone profit and loss statements submitted before the Transfer Pricing Officer (TPO) demonstrate the bona fides of the assessee in maintaining separate books of accounts. Again, it is necessary to upload a consolidated balance sheet on the Income Tax portal; however, this requirement does not negate the fact that separate books of accounts were maintained, especially given that the appellant has submitted all relevant documents to substantiate this assertion. Assessee has in fact maintained separate books of accounts. Therefore, the ground raised by the Appellant is allowed. Jurisdiction u/s 263 was invoked solely based on audit objections and the proposal from the AO and without any independent application of mind by the Principal Commissioner of Income Tax (PCIT) - As we find that while partially accepting the audit objections, the AO stated in the concluding paragraph of the letter dated February 9, 2024, that the objections raised would be settled by invoking the provisions of Section 263. This statement underscores the reliance on audit findings, despite the AO's prior acknowledgment of the separate books of accounts maintained by the assessee. In view of the above discussion referring the facts and circumstances of the present case, it is evident that the proceedings u/s 263 were culminated on the basis of audit objections without application of mind. As decided in the case of Sohana Woollen Mills 2006 (9) TMI 157 - PUNJAB AND HARYANA HIGH COURT held that invocation of section 263 merely based upon audit objection is bad in law. As whole case has been framed based on audit objections without application of mind by the Ld. PCIT. In our view, the AO has undertaken complete enquiry and as such, the subsequent cause of action of invocation of section 263 is held to be without jurisdiction. Revenue in the present case has failed to demonstrate how the order passed by the Assessing Officer (AO) was erroneous or prejudicial to the interests of the revenue. The Principal Commissioner of Income Tax (PCIT) has not substantiated any claims of non-application of mind by the AO, particularly given that the appellant submitted all requisite documents, including standalone profit and loss statements, cost sheets for Unit I and Unit II, turbine bills, invoices, and other relevant materials to the Assistant Commissioner of Income Tax (ACIT), Transfer Pricing Officer (TPO), and the PCIT. All submitted documents have been verified by the respective authorities, and, in our view, mere allegations that the AO issued the order without proper consideration are insufficient to justify the setting aside of the assessment order through the invocation of Section 263 - Decided in favour of assessee.

Issues Involved:

1. Legality of the order passed under Section 263 by the Principal Commissioner of Income Tax (PCIT).
2. Satisfaction of twin conditions under Section 263 for the order to be considered erroneous and prejudicial to the interest of revenue.
3. Examination of the allocation of expenses and maintenance of separate books of accounts for eligible and non-eligible units.
4. Invocation of Section 263 based on audit objections and without independent inquiry by the PCIT.
5. Verification of the deduction claimed under Section 80IA.
6. Examination of the apportionment of expenses between eligible and non-eligible units.
7. Non-submission of vouchers and segregation of depreciation allowances.

Detailed Analysis:

1. Legality of the Order under Section 263:
- The appellant contended that the order passed by the PCIT under Section 263 was illegal, void ab initio, and unsustainable as it did not follow the mandatory legal requirements. The PCIT's order was challenged on the grounds that it was based on audit objections without independent verification or inquiry, rendering it arbitrary and unjust.

2. Satisfaction of Twin Conditions under Section 263:
- For an order to be revised under Section 263, it must be both erroneous and prejudicial to the interest of the revenue. The appellant argued that these conditions were not met as the assessment order was neither erroneous nor prejudicial. The claimed deduction under Section 80IA was less than the available deduction, making the exercise revenue neutral.

3. Examination of Allocation of Expenses and Maintenance of Separate Books:
- The appellant maintained separate books of accounts for eligible units, which were verified by the Assessing Officer (AO) and Transfer Pricing Officer (TPO). The PCIT's assertion that expenses were shifted from non-specified to specified units was refuted by the appellant, who provided detailed cost analyses and profit ratios for both units, demonstrating no significant discrepancies.

4. Invocation of Section 263 Based on Audit Objections:
- The appellant argued that the PCIT invoked Section 263 solely based on audit objections without conducting any independent inquiry. This reliance on audit objections was deemed insufficient for invoking revisionary powers, as supported by judicial precedents that emphasize the need for independent application of mind by the PCIT.

5. Verification of Deduction Claimed under Section 80IA:
- The appellant consistently claimed deductions under Section 80IA from AY 2012-13 onwards, with all relevant documents, including Form 10CCB and standalone balance sheets, submitted to the AO and TPO. The deductions were previously accepted in assessments, indicating compliance with the eligibility criteria.

6. Examination of Apportionment of Expenses:
- The appellant provided a detailed breakdown of expenses for both eligible and non-eligible units, using SAP software to ensure accurate allocation. The PCIT's failure to recognize this documentation and the lack of any pointed discrepancies in the records submitted were highlighted as oversights in the revisionary proceedings.

7. Non-submission of Vouchers and Segregation of Depreciation:
- The appellant clarified that all necessary vouchers and TDS details were submitted and verified by the AO. Separate computations for depreciation under the Income Tax Act were provided, contradicting the PCIT's claims of non-segregation.

Conclusion:
The tribunal found that the AO conducted a detailed inquiry, and the assessment order was neither erroneous nor prejudicial to the revenue's interest. The PCIT's reliance on audit objections without independent verification was deemed unjustified. Consequently, the order under Section 263 was quashed, and the appeals were allowed.

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