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TMI Blog2019 (11) TMI 798X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the AO, after perusal of the reply of the assessee in respect of deduction u/s. 80IC of the Act, can be held to be unsustainable in law or whether can it be said to be a plausible view? - HELD THAT:- Export incentives, by whatever name called, given by the Government is with a view to incentivize and reduce the effective cost of production of the assessee. There is essentially no element of profit derived from export incentives, but it is meant to reduce the cost of production. Case of CIT Vs Meghalaya Steels Ltd [ 2016 (3) TMI 375 - SUPREME COURT] wherein one of the questions before the Apex Court was whether insurance subsidy received from the Government could be said to be derived from the industrial undertaking and hence considered for the purposes of computing deduction u/s 80IC as observed that the insurance subsidy was given to subsidize the cost of insurance premium incurred by the assessee in relation to the premises as well the stock manufactured at the eligible Unit. Accordingly the Court observed that such subsidy being relatable to the cost of production of the Unit had direct first degree nexus with the business of the eligible undertaking and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntribution towards PF/ESIC of ₹ 1,91,996/- and disallowance of expenses u/s. 14A of the Act, requiring it to explain as to why these items of expenditure should not be disallowed. In response to the same the assessee filed its written reply dated 14.03.2016. Thereafter, the AO completed the assessment u/s. 143(3) of the Act on 28.03.2016 determining total income of ₹ 22,96,82,980/-. 3. Subsequently, the Ld. Pr. CIT in exercise of his powers u/s. 263 of the Act was of the view that order of the AO dated 28.03.2016 passed u/s. 143(3) of the Act was erroneous and prejudicial to the interest of the revenue and he was pleased to set aside the assessment order by passing the impugned order as under: 4. The submission of the assessee is considered. The assessee contended that the issue of eligibility u/s. 80IC was raised at the time of assessment and the assessee has furnished reply on this point. However, on perusal of relevant record it appears that the relevant questionnaire of the AO refers to query pertaining to deduction u/s. 80lA and not 80IC. The possible plea that there could be typographical error appears to be farfetched. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he treatment for 'unclaimed balance adjusted also needs further enquiry and examination to ascertain whether the same is includible in the income derived from eligible business in terms of provision u/s. 80IC. Needless to say the issue of applicability of various case law relied upon by the Ld. AIR could be examined only after enquiring the nature of the transaction under the head unclaimed balance adjusted . The other items under the head 'Insurance and other claims' and 'Export incentives also need to be examined and enquired into in order to determine the exact nature of receipt and to check whether the same is includible in. the income derived from eligible business in terms of provision u/s. 80IC. The judicial pronouncement relied upon by the Ld. A/R could be examined and its application' or otherwise could' be seen only after ascertaining the relevant facts. Accordingly on this issue also the assessment order suffers infirmity on the ground of lack of enquiry. Finally as regards various case law relied upon by the assessee in support of its claim, it is observed that application of law will come into play only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr. CIT. It is a trite law that the disclosure of facts by the assessee in the return of income and for in the course of assessment proceedings cannot give immunity from revisional jurisdiction of the CIT/Pr. CIT u/s. 263. In this context, it may be 'mentioned here that in the' case of Commissioner of Income tax, Centrall Kolkata Vs Maithan International, it was held by Calcutta High Court [2015] 56 taxmann.com 283(Calcutta) that it is not the law that the Assessing. Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial order. Where the relevant enquiry was not undertaken, as in the case, the order is erroneous and prejudicial too and there/we 'revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas or enquiry are pursued the enquiry cannot be said to have been faithfully conducted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amaswamyChettiar V. CIT, (1996) 220 ITR 657). 6. I have carefully considered the submission made on behalf of the assessee and perused the material available on record and found that the issues pointed out in the show cause needs verification as merely accepting' submission without calling for relevant material/evidences during the course of assessment proceedings the A.O. failed to examine the above referred issue. After having considered the position of law and facts and circumstances of the instant case, I am of the. considered opinion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c ) below section 263 (1) of the Act. Accordingly, the issue is set aside to the table of A.O on specific point mentioned in para 2 above. The A.O. is directed to provide reasonable opportunity to the assessee company to produce documents evidences which it may choose to rely upon for substantiating its own claim. Thereafter a fresh assessment order may be passed in accordance with the relevant provisions of law. Aggrieved by the order of Ld. Pr. CIT the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expansion during the period beginning - On the 7th day of January and ending before the 1st day of April 2012 in any Industrial park as notified by the board in accordance with the scheme framed and notified by the 'Central Government in this regard, in the State of Uttranchal. [sec.80-IC 2(a)(ii)]. In relation to this we are attaching herewith the approval certificate of DIC bearing number 1163-64 dated 21-08-2008 and marked as Annexure-D/l. Moreover undertaking also fulfils the conditions mentioned in section 80- IC(4). ii) Conditions - For Deduction Claim under section 80IA The company claiming deduction under section 80-IA (7) as it operates Wind Mill generating Wind power by satisfying conditions mentioned in the section 80-IA(2) i.e. generates power and conditions mentioned in section 80- IA(4)(iv) i.e. undertaking set up in any part of India for generation or generation and distribution of power during the period beginning on the 1st day of April 1993 and ending on the 31st day of March 2017 In relation to this we attaching herewith commissioning certified issued by Executive Engine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Industrial Co. Ltd. Vs CIT {2000} 243 ITR 83 (SC). The Hon ble Apex court while explaining the jurisdictional condition precedent for invoking revisional jurisdiction under section 263 0f the Act, the expression erroneous prejudicial to the interest of revenue has observed as under:- The phrase prejudicial to the interest of the revenue is not an expression of art and is not defined in the Act. 'Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the Revenue. The phrase prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul Industrial Park of State of Uttaranchal, and upon examining the reply furnished by the assessee (refer Para 5 supra), the AO framed the assessment order u/s. 143(3) dated 28.03.2016. In view of judicial pronouncements discussed supra, we thus note that the AO has passed the assessment order after calling for details on the issues found fault by the PCIT and after considering the reply and documents filed before him passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. CIT s finding fault with the order of the AO as erroneous as well as prejudicial to the interest of revenue on account of lack of inquiry has to fail. 10. Now we proceed to answer the question as to whether the decision of the AO, after perusal of the reply of the assessee in respect of deduction u/s. 80IC of the Act, can be held to be unsustainable in law or whether can it be said to be a plausible view. We note that in the notice issued u/s. 263, the Ld. CIT has alleged that the assessee has claimed excess deduction u/s. 80IC of the Act on certain items of other income which were not derived from the eligible business of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the company is required to compulsorily deploy funds by way of security deposits with the electricity boards in order to obtain supply of power for its unit. He thus pointed out that it is not a case where the assessee has kept deposit with the dominant intention to earn interest income but in this case the assessee was under compulsion to maintain deposit with the electricity board to ensure supply of power to the unit. He thus contended that such interest income had first degree nexus with the eligible undertaking of the assessee and accordingly the same would equally qualify for the deduction u/s 80IC of the Act. We note that this claim of the assessee is supported by the following decisions: (i) CIT Vs. Nagreeka Foils Ltd. in ITA No.99 of 2007 Hon'ble High Court of Calcutta dt.21.07.2014; Both, in the case of CIT Vs. Sterling Foods (supra) and in the case of liberty India Vs. CIT (supra), Their Lordships have laid emphasis to find out whether there is a direct nexus between the money earned and the activity pursued by the assessee. In the case of Pandian Chemicals (supra), interest was earned by the assessee from out of deposits made wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We also find merit in the alternate contention of the Ld. AR that even if such interest is held to be not eligible for deduction u/s 80IC of the Act, then it is the net interest which should be considered for the purposes of computing deduction u/s 80IC of the Act. Going by the figures as set out in the standalone accounts of the eligible unit, the following position emerges: Particulars Amount (Rs.) Interest paid ₹ 3,12,66,009/- Interest Received ₹ 4,64,496/- Net Interest Paid ₹ 3,08,01,513/- This alternative plea of the assessee is found to be supported by the following judicial pronouncements, which are as under; (i) ACG Associated Capsules (P) Ltd. Vs. CIT, Hon'ble Supreme Court in (2012) 343 ITR 89(SC) Whether therefore, ninety per cent of not gross rent or gross interest but only net interest or net rent, which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the same logic equally applies for purchase of imported raw materials. In our considered view therefore the exchange rate fluctuation gain/loss is part parcel of the profits and gains of the eligible unit and is therefore entitled for deduction under section 80-IC of the Act. In this regard, we rely on the following decisions; (i) CIT Vs. RachnaUdyog in (2010) 35 DTR 65 Hon'ble Bombay High Court; Deduction under sec. 80IB Profits and gains derived from industrial undertakingExchange rate difference Exchange rate difference arises out of and is directly related to sale transaction involving export of goods of the industrial undertakingDifference arises purely as a result of fluctuation in the rate of exchange between the date of export and the date of receipt of proceeds Therefore, the difference on account of exchange rate fluctuation is entitled to deduction under sec. 80ID. (ii) JCBL India Pvt. Ltd. Vs. ACIT in ITA 368/Chd/2012 Hon'ble ITAT Chandigarh; 12. From the above, it is clear that the Hon'ble High Court has categorically held that the exchange rate fluctuation arises out of and is di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not claimed as deduction from the business profit, as a corollary the write back out of such provision was also excluded from the computation of eligible profits. We note that the provisions written back were indeed deducted from the computation of the eligible profits u/s 80IC of the Act. This fact is verified from the computation of income of the assessee. In the circumstances since the assessee has already disallowed and excluded such item of income in the computation of eligible profit u/s 80-IC, the question of its deductibility u/s 80IC does not arise under the facts and circumstances of the case. (d) Unclaimed balances adjusted: This head includes amount of sundry balance written back in respect of sundry creditors. The assessee had account for cessation / remission of trading liabilities which constituted income u/s 41(1) of the Act. The liabilities were accounted as expenses of the eligible undertaking in the earlier years and therefore in arriving at profits eligible for deduction u/s 80IE of the earlier years, deduction for such trading liabilities were allowed. In the year under consideration, the unpaid balances/liabilities which were found to be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the circumstances we find force in the Ld. AR s argument that the insurance receipt has a first degree nexus with the business of the eligible Undertaking. Some of judicial references are discussed hereunder:- (i) ACIT Vs. M/s.Ansvsco in ITA 910/Chd/2012 Hon'ble ITAT Chandigarh; We have already in the paras herein above, while deciding appeal of the revenue upheld the order of Commissioner of Income Tax (Appeals) in allowing deduction under sec 80IC of the Act on Miscellaneous Income, Insurance Claim, and income from sale of scrap ..... iii) DCIT Vs. M/s. VMT Spinning Co. Ltd. in ITA 12/Chd/2014 Hon'ble ITAT Chandigarh; ''26( i) The revenue also challenged order of Id. CIT(Appeals) in increasing eligible profit under section 80IC of the Act on insurance claim received for ₹ 2,50,125/regarding income from insurance claim. Regarding the income from insurance claim, Assessing Officer referred to the decision of the Hon'ble Supreme Court in the case of Sterling Foods 237 ITR 597 and disallowed claim of assessee. The Id. CIT(Appeals) considering the issue directed the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no sale of Focus Product license made by the assessee and there is no profit element involved since the same is reimbursed at the actual cost only. It is like DEPB license which is to subsidise the cost of export sales so that it can be competitive in the market. (iii) Status Holder License is given with the objective to promote investment in upgradation of technology of some specified sectors at 1% of the FOB value of the exports in the form of Duty Credit. The same is received over above the duty credit claimed under other provisions. Status holder License is based on actual user condition and shall only be used for the Import of capital Goods for payment of custom duty. Again, there is no sale of Status Holder License made by the assessee and there is no profit element involved since the same is reimbursed at the actual cost only. It is also like DEPB license which is to subsidise the cost of export sales so that it can be competitive in the market. From the above discussion it is clear that these export incentives, by whatever name called, given by the Government is with a view to incentivize and reduce the effective cost of production of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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