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TMI Blog2021 (4) TMI 464X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the respondent given that the original assessment order passed by the AO is not erroneous as the AO has granted deduction claimed under Section 10A of the Act only after duly verifying the documents submitted during the course of original assessment proceedings? (ii) Whether on the facts and in the circumstances of the case the Tribunal was right in law in concluding that in the absence of separate books of accounts being maintained for the 10A units, the deduction shall be computed based on the overall average profit margin of the appellant despite the provisions of Section 10A of the Act specifically provides for unit-wise computation of deduction? and (iii) Whether in the facts and in the circumstances of the case the Tribunal was right in remanding the case back to Assessing Officer for fresh adjudication?" 3.The assessee is a company engaged in the business of software development. For the assessment year under consideration 2010-11, they filed their return of income on 27.09.2010, declaring a taxable income of Rs. 52,87,83,933/- under normal provisions, after claiming deduction of Rs. 79,13,24,379/- under Section 10A of the Act and book profit of Rs. 1,37,13,42,888 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has shown lesser profit relating to non 10A units thereby reducing the taxable profit by booking excessive expenditure. The average profit of 11.31% has to be uniformly applied and the deduction allowed u/s 10A will have to be reworked accordingly, thereby reducing the deduction under Section 10A, than what is claimed in the return of income. The Assessing Officer has failed to consider this aspect while finalizing the Assessment Order. As such, the Order passed by the Assessing Officer dated 28.03.2014 u/s.143(3) is erroneous and prejudicial to the interest of revenue. Therefore, please show cause as to why the aforesaid order passed u/s.143(3) for the AY 2010-11 should not be set aside u/s.263 of the Income tax Act to bring to tax the aforesaid income which has been left out to be assessed by the Assessing Officer in the impugned order." 5.The assessee submitted their reply dated 16.02.2016, the Authorised Representative of the assessee was heard in person by the PCIT and an order under Section 263 of the Act dated 24.02.2016, was passed setting aside the assessment order dated 28.03.2014, for the limited purpose of withdrawing the excess deduction allowed to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Further, the assessee-company has not maintained separate books of accounts for 10A units and in the absence of separate books of accounts for the 10A units, it is evident that the assessee had shown lesser profit relating to non-10A units thereby, reducing the taxable profit by booking excessive expenditure. That it was stated that the average profit of 11.31% has been uniformly applied and the deduction allowed under Section 10A will have to be reworked accordingly, thereby, reducing the deduction under Section 10A Act, than what was claimed in the return of income. Therefore, in the opinion of the PCIT, the assessment order under Section 143(3) of the Act, is erroneous and prejudicial to the interest of Revenue. Thus, it could be seen that the PCIT was of the opinion that the assessment order is erroneous and prejudicial to the interest of Revenue on the ground that the profit margin of 10A units is very high, when compared to the profit margin of non-10A units. Further, the assessee has not maintained separate books of accounts for 10A units and therefore, the average profit has to be ascertained and uniformly applied and therefore, the deduction allowed under Section 10A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of deduction under section 10A of the Act. If this is the undisputed factual situation, as has been reflected in the assessment order, we are of the clear view that the Assessing Officer had applied his mind to arrive at the deduction as made by him in his order. Therefore, the PCIT committed an error in holding that the assessment order is erroneous. 12.3.Admittedly, the details called for from the assessee have been submitted before the Assessing Officer, as we find that the Assessing Officer has not recorded that the details were not submitted or not submitted in full form. In the absence of any such finding, it has to be held that the Assessing Officer was satisfied with regard to the details, which were placed by the assessee pursuant to notice dated 29.01.2014. Therefore, the Assessing Officer has completed the assessment based on the materials and documents placed before him and there is nothing to suggest that the conclusion arrived at by him was unsustainable in law, justifying invoking the revisional jurisdiction under Section 263 of the Act. The Chartered Accountant's certificate in Form No.56 was called for from the assessee, which has been submitted wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that they have not booked excessive profits in 10A units and not claimed excessive deduction under Section 10A of the Act. The assessee explained the transaction with its AEs, regarding maintenance of separate books of accounts and the allegation of booking excessive expenditure in non-10A units. This has been brushed aside by the PCIT and not considered. 16.With regard to the maintenance of separate books of accounts, as submitted by the learned counsel, the assessee has stated that it is not mandatory to maintain separate books of account for expenses incurred in the different units for the purpose of claiming deduction under Section 10A of the Act. Without prejudice to the said submission, the assessee stated that they have maintained separate statement of profit and loss for each of its units and the same has been submitted to the Assessing Officer during the course of assessment proceedings. Further, the assessee has also furnished report of the Chartered Account in Form 56F certifying the computation of deduction under Section 10A of the Act. 17.With regard to the allegation of booking excessive expenditure in non-10A units, the assessee pointed out that they have main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .On a perusal of the order passed by the PCIT, we find there is no discussion and finding with regard to the exercise of jurisdiction under Section 263, which according to the assessee was without jurisdiction. Secondly, the issue whether it is mandatory for the assessee to maintain separate books of accounts was also not decided by the PCIT. If according to the PCIT, it is mandatory to maintain separate books of accounts, the alternate submission made by the assessee that they have maintained separate profit and loss account and the same was submitted to the Assessing Officer, who has considered the same and then completed the assessment, was not dealt with or discussed. To be noted that the Assessing Officer did not reject the profit and loss account submitted by the assessee, but undertook an exercise to rework the deduction, which was not challenged by the assessee. 21.The PCIT would state that the Assessing Officer has not made any enquiry. This finding is absolutely vague, as we find from the assessment order under Section 143(3) of the Act, the Assessing Officer did conduct an enquiry, called for details, the details were produced and thereafter, the assessment was complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )], the Court considered the scope of Section 263 of the Act and after noting the decision in CIT vs. Gabriel India Ltd. [(1993) 71 Taxman 585 (Bombay)] and the decision of the High Court of Delhi in CIT vs. Sunbeam Auto Ltd. [(2011) 332 ITR 167 (Del)], held that the power exercised under Section 263 of the Act was on account of mere change of opinion. The operative portion of the judgment reads as follows:- "5. ............ The Commissioner had issued show cause notice dated 12.03.2015 under Section 263 of the Act. In the show cause notice, the Commissioner states that the figures mentioned by the assessee were culled out from the records, thus there was no other independent material which formed the basis of the show cause notice. .......... The CIT while issuing the show cause notice did not rely upon any independent material nor on any interpretation of law but on perusal of the records was of the view that the expenditure cannot be allowed as deduction. Along with the filled in questionnaire, the assessee had filed the copy of the last will and testament of his father, sale deed of the Bangalore property and the legal opinion given by the learned counsel for the assessee. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 30.10.2008. Thus, it is evident that the CIT has made a roving enquiry and substituted his view to that of the view taken by the Assessing Officer who had done so after conducting an enquiry into the matter and after calling for all documents from the assessee, one of which is the last will and testament executed by the assessee's father. Therefore, we are of the clear view that this is not a case where the Commissioner could have invoked the power under Section 263 of the Act. For all the above reasons, the Substantial Questions of Law 1 and 4 are answered in favour of the assessee. 13.The Substantial Question of law No.3 is with regard to the expenditure claimed by the assessee. The assessee had produced documents before the Assessing Officer who had scrutinized the same and accepted the genuinity of the claim and granted the benefit. The CIT disallowed the expenses on the ground that the Assessing Officer did not make an in depth inquiry. A similar finding was tested for its correctness by the High Court of Delhi in the case of Commissioner of Income vs. Sunbeam Auto Ltd. [(2011) 332 ITR 167 (Delhi)] and it was held that one has to keep in mind the distinction between " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be given character of business income for the purpose of set off and therefore, the question of there being plausible view did not arise and therefore, the order of the Tribunal was quashed. In the case on hand, we have found that the Assessing Officer did apply his mind and then come to the conclusion. 31.Reliance was placed on the decision in the case of Nagal Garment Industries (P.) Ltd. vs. CIT [(2020) 113 taxmann.com 4 (MP)]. This decision is also distinguishable on facts, as in paragraph 9 of the judgment, the Assessing Officer after issuing a questionnaire to the assessee, on considering the reply filed by the assessee and after recording that the reply was not satisfactory, did not proceed further in the matter. Therefore, the decision cannot be applied to the facts before us. 32.Reliance was also placed on the decision in CIT vs. Modi Brother [(2007) 164 Taxman 331 (MP)]. The question of law, which was framed for consideration, was whether the Tribunal was justified in considering the documents, which were not on record before the Assessing Officer while passing the order impugned in the said appeal. The Court had remanded the matter without expressing any opinion o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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