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TMI Blog2017 (11) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... at the stage of conducting the hearing and prior to passing an order under Section 263 of the 1961 Act. Accordingly, question No.2 is also answered in favour of the Revenue, and against the Assessee. Nothing on record to suggest that at any stage, which is at the show cause stage or at the time, when, hearing was held before the DIT, adequate opportunity was given to the Assessee to rebut the concerns and/or underlying material, if any, that the DIT, had in his possession. - Decided in favour of assessee. Tribunal could not have come to a conclusion that the Assessee had not worked out the deductions in accordance with the provisions of Section 80IB(13), without the DIT giving adequate opportunity to the Assessee. As noted by the Tribunal and also by us, the relevant material required for claiming deduction under Section 80IB had been placed on record by the Assessee before the Assessing Officer. The only reason that the DIT and the Tribunal came to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue, was, that, according to them, the Assessing Officer had not applied his mind to the materials placed on record by the Assessee. In so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India (RBI) approval in November, 1994. 2.3. The primary business of the Assessee is to carry on exploration and production of oil and gas in India. For this purpose, it had acquired participating interest in the following oil and gas blocks. The participating interest was granted by the Government of India (GOI) : Sl. No. Oil and Gas Field Block Location (i) Ravva Krishna Godavari (ii) CB-OS/2 Cambay Offshore (iii) KG-OS/6 Krishna Godavari (iv) RJ/OS/90/1 Rajasthan (v) KG/DWN/98-2 Krishna Godavari 2.4. The participating interest acquired by the Assessee was taken forward by entering into Production Sharing Contract (in short, PSC) qua each block with GOI along with other Joint Venturers, who were likewise involved in the exploration and production of oil and gas. In respect of each of the oil and gas blocks referred to above, the Assessee entered into a Joint Operating Agreement (in short, JOA), with other Joint Venturers. Furthermore, to carry on exploration and operations, qua each of the blocks, the Assessee entered into, what are known as Unincorporated Joint Venture Agreements (in short, UJV) with other joint venturers. 2.5. It appears that each PAC and/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the deduction claimed under Section 80IB of the 1961 Act had been made on the same basis as was done in the preceding AYs. The Chartered Accountant's (CA's) certificate dated 13.10.2004, for each of the two gas fields, i.e., SGF unit and LGF unit, the Audit Report in the prescribed form i.e., 10CCB, and the Profit and Loss Account, were also filed by the Assessee. 3.6. The Assessing Officer, thereafter, passed an Assessment Order dated 28.12.2006, albeit, under Section 143(3) of the 1961 Act. The Assessing Officer, while, passing the Assessment Order, recomputed the income of the Assessee and pegged it at ₹ 109,59,99,910/-, as against declared income of ₹ 49,16,89,883/-. While, recomputing the income, the Assessing Officer disallowed the claims, inter alia, worth ₹ 8,66,77,608/- under the following heads : (i) provision made with respect to site restoration cost; (ii) purchase of software; and (iii) club membership fee. 3.7. In so far as deduction claimed under Section 80IB(9) of the 1961 Act was concerned, the same was sustained. 3.8. The DIT, however, took umbrage to the Assessing Officer sustaining the deduction claimed under Section 80IB(9) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the order under Section 263 of the 1961 Act on 12.03.2009, which was, as indicated above, assailed before the Tribunal by the Assessee. 4.3. The DIT, in his order dated 12.03.2009, has made observations with regard to SGF unit and LGF unit, which can be, broadly, paraphrased as follows : SGF Unit: (i) The Assessee had not declared as to whether or not AY 2003-2004, was the first year of commercial production. This declaration was necessary as deduction under Section 80IB of the 1961 Act, could be claimed only from the year, in which, commercial production commenced. (ii) In terms of Section 80IB(13) read with Section 80IA(7), the undertaking claiming deduction has to get its accounts audited and file a report in that behalf in the prescribed form. (iii) It is imperative on the part of the undertaking claiming deduction to maintain separate accounts right from the date of its inception in respect of the unit claiming deduction. The Assessee, instead, has filed a consolidated Profit & Loss Account and Balance Sheet for the Ravva block as a whole. Ravva block has been in operation, since, 1994. The SGF unit is only a part of the Ravva block and is not a separate undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment made was, consequently, set aside and a direction was issued to the Assessing Officer to examine the allowability of deduction under section 80IB of the 1961 Act and to recompute the same. In other words, a direction was issued to make a fresh assessment keeping in mind the observations made by the DIT, in his order. 4.5. As indicated at the outset, the Tribunal, however, dismissed the appeal via the impugned judgement and order. It is important to note that the Assessee, during the pendency of the appeal, had moved an application, it appears, for taking on record, an additional ground, which was that the DIT could not travel beyond the SCN, and that, if, he chose to travel beyond the SCN, adequate opportunity had to be given before passing a final order. The Tribunal observed in the impugned judgement and order that it agreed with the proposition of law as conceived in the additional ground filed by the Assessee, and being a question of law, it would permit the additional ground to be taken on record. 4.6. The Tribunal, on its part, in the impugned judgement and order has returned the following findings of fact and/or made observations, which are set out hereafter : (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date mentioned by the Assessee, was correct, as for the earlier years the Assessing Officer had no occasion to examine the Assessee's claim for deduction under Section 80IB of the 1961 Act. The year in issue was the first year, in which, the Assessee had claimed deduction under Section 80IB of the 1961 Act qua the SGF Unit. (iv) Though, the DIT in paragraph 6 of its order had observed that the Assessee was not eligible for claiming deduction under Section 80IB, however, the final direction issued by him to the Assessing Officer was to examine the allowability of the deduction and recompute the same under Section 80IB in accordance with law. Therefore, such an observation in the DIT's order was only passing remarks, which could not bind the Assessing Officer. (v) There was no effective variance as between the SCN and the final order passed by the DIT under Section 263 of the 1961 Act. The order passed under Section 263 was the net effect of various lacunae found in the order of the Assessing Officer vis-a-vis claim for deduction made by the Assessee under Section 80IB(9). (vi) Since, the Assessee cited the judgement of this Court in Silver Cloud Estates Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, it may be true that whenever a claim is allowed, the Assessing Officer need not elaborately deal with it in the Assessment Order, the chain of events as they transpired in the instant case would show that there was no application of mind by the Assessing Officer vis-a-vis the veracity of the claim made by the Assessee. (xii) Lastly, while it is true that an eligible undertaking need not maintain separate accounts for claiming deduction under Section 80IB of the 1961 Act, but the aspects, which we understand, were raised by the DIT were not verified by the Assessing Officer, while, completing the assessment. 4.8. It is in this background, that the instant appeal has been preferred by the Assessee. Submissions of Counsels 5. In support of the appeal, on behalf of the Assessee, arguments were addressed by Mr.C.S.Agarwal, Senior Advocate, instructed by Mr.M.V.Swaroop, while, on behalf of the Revenue, submissions were made by Mr.T.Ravikumar, assisted by Mr.Vijay Kumar Funna. 6. Submissions of Mr.Agarwal can, broadly, be paraphrased as follows : (i) That the DIT had exceeded its jurisdiction in proposing to revise the assessment order, since, their existed no material befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 (Bom.). (vii) There was an inherent contradiction in the order of the DIT. On one hand, DIT held that the Assessee was not eligible to claim deduction under Section 80IB, on the other hand, in the same breath, he has directed the Assessing Officer to examine the allowability of the deduction and recompute the same in accordance with the provisions of Section 80IB of the 1961 Act. This observation shows that the DIT was unsure both with regard to the eligibility, as also the computation made by the Assessee, and therefore, could not have initiated action under Section 263 of the 1961 Act. The action under Section 263 of the 1961 Act could only have been initiated, upon due consideration of the matter, and not based on a hypothetical assessment and that the assessment order was both erroneous and prejudicial to the interest of the Revenue. In support of this submission, reliance was placed on the decision of the Supreme Court in : Malabar Industrial Co. Ltd. Vs. CIT, 243 ITR 83 (SC). (viii) The Tribunal failed to appreciate that the DIT could not have exercised revisional power, unless he had put the relevant material warranting exercise of such power, to the Assessee. Given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect, as there was no material put to the Assessee with regard to the same. In other words, the judgement in Silver Cloud Estates Pvt. Ltd., was not cited, at least, at that stage to advance the submission that the issue with regard to the eligibility was not put to the Assessee by the DIT via his SCN. (xii) The observation of the Tribunal that non-computation of deduction in the manner specified under the Act could only result in denial of deduction under Section 80IB of the Act, was erroneous, as such an observation/finding read much more into what was not stated either in the SCN or, even in the order passed under Section 263 of the 1961 Act. These findings were recorded by the Tribunal in order to overcome the ratio rendered in the judgement of this Court in : CIT Vs. PVP Ventures Ltd., 23 taxmann.com, 286 (Mad). (xiii) The Tribunal's finding/observation that it was the duty of the Assessing Officer to examine the allowability of the deduction in accordance with law is misconceived. The Tribunal, in this behalf, overlooked the fact that this was not even the assertion of the DIT. This observation also loses sight of the fact that the Assessing Officer had examined th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate that the Assessee had commenced preparing its audited accounts in respect of its claim for deduction - from the year, when, commercial production began, in consonance with the decision rendered by this Court in : Velayudhswamy Spinning Mills (P) Ltd. Vs. CIT, 340 ITR 477 (Mad). The obligation to prepare the audited accounts fastens only, when, commercial production of a given undertaking commences. It is also for this reason that the Assessee had not carried forward its loses of earlier years to be set off against the profits of the SGF unit qua the relevant AY. This methodology was in sync with the ratio of the judgement in Velaydhswamy. These are aspects, which were lost sight of both by the DIT and the Tribunal. (xviii) The DIT failed to appreciate that there was no requirement under the 1961 Act to maintain separate books of accounts in respect of the undertaking qua which, a deduction was claimed under Section 80IB. The Tribunal, while, recognising this aspect, still went on to sustain the order of the DIT, ignoring the fact that the audited accounts for the relevant period vis-a-vis the undertaking in respect of which, deduction was claimed, had, in fact, been pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is in breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed, in as much as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with undue haste". [See Gee Vee Enterprises vs ACIT, Delhi-I & Ors. (1975) 99 ITR 375] (iv) The expression "prejudicial to the interest of the Revenue" while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. [See Malabar Industrial Co. Ltd.]. (v) Every loss of tax to the Revenue cannot be treated as being "prejudicial to the interest of the Revenue". For example, when the Assessing Officer takes recourse to one of the two legally viable courses or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss.[See CIT vs Max India Ltd. (2007) 295 ITR 282 (SC)] (vi) There is no requirement of issuance of a notice before commencing proceedings under Section 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, with respect to the deduction claimed under Section 80IB. (vi) This information was supplied by the Assessee vide communication dated 03.11.2006. (vii) The said information was given, apart from the material, which the Assessee had supplied along with its return of income. The material furnished was in the form of: (a) the annual audited accounts for the year ending on 31.03.2004; (b) the audit report; and (c) the certificate of the concerned Chartered Accountant with regard to the SGF and LGF units, which, inter alia, indicated that the conditions stipulated for claiming deduction under Section 80IB stood satisfied. (See the audit report in the prescribed form, i.e., Form No.10CCB). (viii) The audit report, which, the Assessee submitted with regard to the two (2) units, i.e., SGF unit and LGF unit, undoubtedly, gave the information with regard to the date of commencement of operations; the initial AY; the quantum of deduction claimed; and the basis for allocation of costs. In this connection, it would be important to note that in so far as the SGF unit was concerned, the date of commencement of operation was given as 19.09.2001; the initial AY qua which deduction was cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year; when, the deduction was claimed; the quantum of deduction claimed; whether or not the profit and loss account qua the said activity in order to claim deduction under Section 80IB had been filed, for the first time ; and, lastly, the basis, on which, common expenses had been allocated, as the said units, that is, SGF and LGF units, were part of the Ravva Joint Venture Gas Block and CB-OS/2 Joint Venture Gas Block respectively. 9.2. The Assessing Officer, thus, having been supplied with the information and the documents, allowed the deduction vis-a-vis the claim made under Section 80IB in totality, and while doing so, made a rather prosaic observation as admitted by the Assessee. The DIT seems to have taken umbrage to this approach of the Assessing Officer, without, to our minds, getting into the nitty-gritty of the case. The DIT, as indicated by us in our narration above, has adverted to several aspects, some of which are factually wrong. 9.3. For example, in case of the SGF unit, it is the DIT's observation, in its order dated 12.03.2009, that it is not indicated as to whether or not AY 2003-2004 was the first year of commercial production. This is, clearly, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.6. On the other hand, Mr.Agrawal, placed reliance on the judgement rendered in Niko Resources Ltd. to buttress his argument that each well was to be construed as a separate undertaking. In other words, the contention was that the deduction qua the units in issue had been, correctly, claimed. 9.7. Similarly, with regard to the DIT's observation that the Assessee had not carried forward losses incurred in the period prior to the year, in which, commercial production had commenced, reliance was placed by Mr.Agrawal, on the judgement of this Court rendered in Velayuthaswamy case. The argument advanced was that the Assessee was prohibited in such like cases, from carrying forward losses incurred prior to the year, in which, commercial production had commenced. 10. In our view, all these aspects could have been answered by the Assessee, only, if, the SCN issued by the DIT had, clearly, articulated these concerns. As correctly argued by Mr.Agrawal, the only aspect, which the DIT highlighted in the SCN, was that, the claim for deduction made by the Assessee under Section 80IB(9) had not been computed in accordance with the provisions of Section 80IB(13) read with 80IA(5). 10.1. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showed that the SCN, which is dated 21.01.2009, in the first instance, fixed the date of hearing as 13.02.2009, which was adjourned to 05.03.2009, at the request of the Assessee. The record also disclosed that the one and only time the Assessee's representative was called for hearing was on 05.03.2009. On that date, the Assessee filed, via its representative, one, Mr.P.R.Prasanna Varma, Chartered Accountant, written submissions dated 25.02.2009. There is nothing on record to suggest that the concerns and/or objections that the DIT may have had vis-a-vis the assessment order were put to the Assessee. There is nothing on record which would suggest that the DIT had confronted the Assessee with any material, in particular, with regard to the conclusion that he has reached which is that the two units, that is, SGF and LGF units, were not separate undertakings and hence, not eligible to claim deduction under Section 80IB. 11.4. Therefore, to our minds, even if, we were to accept, for the moment, the line of reasoning taken by the Tribunal that there was no effective variance between what was stated in the SCN and that, which was found mentioned in the DIT's order, we are unable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, in our view, as rightly contended by Mr.Agrawal, there has been a breach of the principles of natural justice. 11.7. As noted above by us, the order of the DIT consists of several factual errors, which ignores, completely, the material placed on record by the Assessee. Aspects as to whether or not SGF and LGF units were separate undertakings and as to why SGF unit ought to have carried forward the losses of the period prior to the date of commencement of commercial production and have it set it off against profits derived from the said unit, were, evidently, not put to the Assessee. The Tribunal, in the impugned judgement and order, skirts this vital issue. In our opinion, there is no finding returned by the Tribunal that the concerns articulated in the order of the DIT were put to the Assessee with an opportunity to rebut the same. 12. Before we conclude, we must indicate that the Tribunal seems to have, clearly, erred in holding that since, the SCN did not refer to the provisions of Section 80IB(5), it could not be construed as a cardinal error rendering the proceedings void or invalid, as the lacunae could be cured, by taking recourse to Section 292B of the 1961 Act. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal and also by us, the relevant material required for claiming deduction under Section 80IB had been placed on record by the Assessee before the Assessing Officer. The only reason that the DIT and the Tribunal came to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue, was, that, according to them, the Assessing Officer had not applied his mind to the materials placed on record by the Assessee. In so far as the Assessee was concerned, it claimed that it had worked out the deduction in accordance with the provisions of Section 80IB(13) of the 1961 Act, which, in turn, referred to sub-section (7) to (12) of Section 80IA of the very same Act. Question No.5 and 6 :5 & 6 13.5. In so far as the question No.5 and 6 are concerned, the answer will, once again, have to be in favour of the Assessee, and against the Revenue. The Tribunal was, clearly, in error in making a reference to the provisions of Section 80IB(5) of the 1961 Act, which had no relevance in the facts and circumstances obtaining in the instant case. The position was no different in respect of Section 292B of the 1961 Act. 14. For the foregoing reasons, we are of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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