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TMI Blog2016 (5) TMI 1308X X X X Extracts X X X X X X X X Extracts X X X X ..... -12, completely ignoring the factual position prevailing in the assessment year 2010-11, which renders his assumption of jurisdiction u/s.263 of the I.T. Act bad in law. 2. On the facts and in the circumstances of the case, the learned CIT erred in initiating proceedings u/s.263 of the I.T. Act on an incorrect assumption that there was non-application of mind on the part of the Assessing Officer while making assessment for the assessment year 2010-11 with the result that assumption of jurisdiction u/s.263 of the I.T. Act is also bad in law for this reason. 3. On the facts and in the circumstances of the case, the learned CIT erred in assuming his jurisdiction u/s.263 of the I.T. Act, whereas the mandatory conditions for assuming such jurisdiction are totally absent, with the result that the impugned order passed u/s.263 is bad in law. 4. On the facts and in the circumstances of the case, the learned CIT erred in arriving at a conclusion without any basis whatsoever to the effect that the assessment order passed by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue. 5. On the facts and in the circumstances of the case, the learned CIT e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed exemption u/s.10AA of the I.T. Act of Rs. 66,02,994/- as computed in Form No.56F filed by the assessee. However, no other working for the same has been incorporated in the Form No.56F as to how the eligible profit u/s.10AA of the Act was computed. 3. The assessment proceedings were finalized u/s.143(3) of the Act by accepting the assessee's returned income and thereby assessee's claim u/s. 10AA of the Act was accepted as returned. During the course of scrutiny assessment in assessee's case for A.Y. 2011-12, the detailed enquiry and investigations carried out revealed that the assessee is an engineer doing professional management consultancy services in the field of manufacturing domain specifically related to 'lean manufacturing management'. Assessee is also Director in Kaizen Institute - India and Kaizen Institute - Africa, of which he is founding partner. M/s. Kaizen Institute is a global management consulting firm, headquartered at Switzerland and assessee is also one of the consultants of this group, M/s. Kaizen Institute (I) Pvt. Ltd. and Kaizen Institute-Africa, are also part of the Kaizen Institute - Global and the assessee is the whole-time director of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the facts narrated above, it is evident that the assessee is not eligible for claiming deduction u/s.10AA of the I.T. Act in respect of its income from proprietorship M/s. O.S. Process Consulting. Since, the Assessing Officer has not examined this issue regarding eligibility of claim of deduction u/s. 10AA of the Act in light of correct facts as available in the assessment record and allowed the same without making any inquiry and collecting relevant material information in this regard, and thereby, accepted your legally and factually incorrect claim u/s. 10AA of the Act amounting to Rs. 66,02,994/- while computing the taxable income. Therefore, the assessment order has been passed by the Assessing Officer on wrong assumption of facts and incorrect application of law as well as without due application of mind. Hence, the above assessment order is erroneous in so far as it is 'prejudicial to the interest of Revenue'. In this regard reliance is placed on the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT(SC) 243 ITR 83. I, therefore, propose to revise the said order u/s. 263 of the Act. 6. Therefore, please explain why the assessment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the details were filed, as required during the personal hearing, and that documents demonstrate that OS Process Consulting is an entrepreneur under section 2(i) of the Act, and that the same is qualified for exemption under section 10AA. In effect thus, it was submitted that the decision to allow exemption under section 10AA was after due application of mind that it cannot be said that the assessment order was wanting in terms of verifying the claim of the assessee. The assessee then referred to certain judicial precedents in support of the stand that if the Assessing Officer has raised queries and the assessee has given the necessary clarifications, it could not be said that the order of the Assessing Officer is erroneous just because there is no elaborate discussions, in respect of the same, in the assessment order. The fact that the Assessing Officer has taken a different view in a subsequent assessment year does not, by itself, render the decision of the Assessing Officer for the earlier assessment years as erroneous and prejudicial to the interest of the assessee, nor does it mean that the facts for all these assessment years must be the same. On the basis of these submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the SEZ unit. (iii) The inquiries also revealed that the consultancy services are being provided by assessee in his personal capacity without involvement of any infrastructure at the Surat SEZ Unit was also detected during the course of assessment proceedings for A.Y. 2011-12, (iv) Further, assessee was also found to be providing the consultancy services from Ahmedabad only to its overseas clients including M/s. Kaizen Institute-Africa, wherein he is a founder partner and director but foreign exchange receipt from them was routed through his the proprietary concern OS Process Consulting (SEZ unit) on which he claimed the exemption u/s. 10AA of the Act when in fact it was revealed that assessee did not carry out any activities from the SEZ Unit and not taken any goods or provided services out of India from the Special Economic Zone unit. Since assessee's professional management consultancy business was carried on in his personal capacity, it is not possible to accept the contention that assessee in his personal capacity provided professional management services of same nature from two different places being Ahmedabad & SEZ unit at Surat. 7. Coming to assessee's spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Performance Report of O.S. Process Consulting for the period April, 2009 to March, 2010 along with statement of billing for consultancy fees. The order sheet entry dated 18/10/2012 reflects the entry that assessee has been asked to submit copy of bank account of Citi Bank and to produce copy of bills and vouchers. In response, assessee vide written submission dated 29/10/2012 filed details regarding 'expenditure in relation to dividend income, foreign exchange loss with its accounting procedure and expenditure debited to P & L Account with justification for the same.' Assessee also stated that he was submitting bills/vouchers/evidence for expenditure debited to P & L Account shown under Schedule 12 & 13 of the Balance Sheet with copy of relevant detailed ledgers enclosed to the written submission. The assessment order was finalised on 30/10/2012 accepting the returned income. 8. From the facts narrated above, it is evident that the Assessing Officer while finalized the assessment order u/s 143{3) of the Act without examining assessee's eligibility of claim of deduction u/s. 10AA of the Act for the year under consideration nor carried out any inquiry or cross ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arance of the lock, it appeared that the premises has not been opened for a pretty long period". As regards the Assessing Officer's inference that the assessee carried out the business from Ahmedabad, and not Surat, he has relied upon a lot of material from the virtual world and on assessee's website. It is in this background that the Assessing Officer has declined exemption under section 10AA for the assessment. Whatever be the merits of his this action, which we must not comment upon anyway, it is difficult to understand as to how the Assessing Officer's accepting this claim, on the basis of examining evidences on record in his chamber, constitutes something erroneous and prejudicial to the interests of the assessee. What has been gathered by the Assessing Officer in a subsequent assessment year will not end up deciding the facts for the earlier assessment years as well. When he says that this visual inspection of the lock, in the end of 2013, revealed that "the premises has not been opened for a pretty long period" there is nothing to suggest that he was referred to a period as long as five years. In other words, the mere fact that five years later, the office was not in use, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuineness as to whether services were actually rendered from Surat SEZ are not, as a matter of routine, required to be examined by the Assessing Officer in such great detail. He is not necessarily required to be suspicious of everything and all averments must be proved to the hilt in proceedings before him. The core question is whether the Assessing Officer remained unduly passive on the facts which would trigger further inquiries by a reasonable man in his position. In our considered view, that's not the case. An enterprising Assessing Officer, motivated by his passion and deep commitment, may indeed have discovered, even if that be so, a tax misadventure by an assessee, but that fact, even if correct, does not mean that those Assessing Officer who did not discover this misadventure were acting in a manner leading to their orders being rendered erroneous and prejudicial to the interest of the revenue. The action of the Assessing Officer was bonafide and correct and the conclusions arrived at by him were appropriate vis-à-vis material before him. The fact that he did not visit the assessee, that he did not visually examine the lock to find out when was in use or not, and pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on before us. As regards the decision of the coordinate bench relied upon by the learned Departmental Representative, i.e. in the case of Crompton Greaves Ltd Vs CIT [ITA Nos. 1994/Mum/13 and 2836/Mum/14; order dated 1st February 2016], wherein it is held that the amendments to Section 263, by insertion of Explanation 2, by the Finance Act 2015 are retrospective in effect, we may point out that the Explanation 2 to Section 263, which provides that even when an order is passed without making inquiries and verifications which should have been, in the opinion of revisional authority, will be "deemed to be erroneous in so far as prejudicial to the interest of the revenue", is specifically stated to be effective from 1st June 2015. It is clearly a provision adverse to the interests of the assessee and is specifically stated to be prospective in effect. While considering retrospective application of this provision, it will be useful to have the benefit of guidance by a five judge bench of Hon'ble Supreme Court, in the case of CIT Vs Vatika Townships Pvt Ltd [(2014) 367 ITR 466 (SC)] wherein Their Lordships have, inter alia, observed that, "Of the various rules guiding how legislation has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips then further observed that, "In Government of India v. Indian Tobacco Association [2005 7 SCC 396] the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation" and that "The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 286. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature.' Their Lordships also noted that this retrospectively being attached to benefit the persons, is sharp contrast with the provision imposing some burden or liability where the presumption attaches towards prospectivity. Analysing the legal position so laid down by Hon'ble Supreme Court, a coordinate bench of this Tribunal, in the case of Toll Global Forwarding India Ltd vs DCIT [(2015) 152 ITD 283 (Del))], has observed that "it may appear to be some kind of a dichotomy in the tax legislation but the well-settled legal position is that when a legislation confers a benefit on the taxpayer by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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