Shevie Exports v. Dy. CIT - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 1755 (Mum-Trib) : (2013) 052 (II) ITCL 0447 : (2013) 156 TTJ 0525 : (2013) 087 DTR 0401 Income Tax Act, 1961 --Revision under section 263--Erroneous and prejudicial order Non-application of mind by assessing officer--Assessee-firm was engaged in business of export of embroidery items and supplying same to top fashion houses in Europe and U.S.A. Besides this, assessee was also engaged in power generation through windmills. Along with said return of income, assessee had filed audit report in Form 10CCB for claiming deduction under section 80-IA with regard to windmill undertaking. In the said report, assessee had mentioned that date of commencement and operation of undertaking was 29-9-2006, and the initial assessment year from which the deduction had been claimed was assessment year 2008-2009. Assessment was completed after making disallowance under section 14A of foreign travel expenses and excess payment of embroidery charges. The deduction claimed under section 80-IA as per audit report was allowed. Commissioner invoking section 263 held that windmill was installed in 2006 which commenced its operation on 29-9-2006 and first year of its operation, i.e., for assessment year 2007-08 assessee had shown loss on account of depreciation and interest and this loss was set off against export business of non-eligible units in assessment year 2007-08 itself. In this relevant year, i.e., 2008-09 profit had been claimed without setting off loss. Further, in assessment year 2009-10 deduction under section 80-IA was allowed after setting off loss. Said finding was also applicable for relevant assessment year and without setting off loss, deduction under section 80-IA was wrongly allowed. Further, foreign travel expenses were disallowed on fixed percentage of 4% of expenses without desired details and documents. Held :Not justified. Loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted in the period of ten years from the initial assessment year as contemplated or chosen by the assessee. Sub-section (5) of section 80-IA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post-amendment period, i.e., after 1-4-2000 by virtue of section 80-IA(2). Thus, on this count, there is no reason to uphold the cancellation of assessment order under section 263 on the ground that it is erroneous, in so far as it is prejudicial to the interests of Revenue. Foreign travel expenses of 4% also rightly disallowed. Thus, there is no any merits in the impugned order passed under section 263 by the Commissioner for cancelling the assessment and to re-examine the same. Consequently, the impugned order passed under section 263 by the Commissioner is set aside and the assessment order passed by the assessing officer is upheld. Section 80-IA (5) is a non-obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1-4-2000, the initial assessment year was defined for various types of eligible assessees under section 80-IA (12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of initial assessment year has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of section 80-IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80-IA(5). Loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section 80-IA can be determined. This is the true import of section 80-IA (5). [Para 10] Sub-section (5) of section 80-IA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1-4-2000 by virtue of section 80-IA (2). [Para 12] The assessee's claim for initial assessment year i.e., assessment year 2008-2009 and its claim for deduction under section 80-IA made for the first time from assessment year 2008-2009, has not been disputed. Thus, the judgment relied upon by the Departmental Representative will not be applicable to the facts of the present case.[Para 14] Moreover, the claim of deduction under section 80-IA was based on possible legal view which has been allowed by the assessing officer, therefore, it cannot be held that the same is erroneous in so far as it is prejudicial to the interests of the Revenue. Merely because the assessing officer in the subsequent assessment year has followed Special Bench decision which admittedly was rendered with regard to the claim of deduction starting from the assessment year 1996-1997 wherein there was no concept of assessee choosing his option of initial assessment year in view of the provisions prior to the amendment, it cannot be held that the assessee's claim of initial assessment year being assessment year 2008-2009 and its claim for deduction allowed by the assessing officer under section 80-IA is erroneous in law. Thus, on this count, there is no any reason to uphold the cancellation of assessment order under section 263 on the ground that it is erroneous in so far as it is prejudicial to the interests of Revenue. [Para 15] Regarding disallowance of foreign travelling expenses, it is seen that on similar circumstances and facts, the assessing officer has disallowed 4% of the expenditure claimed which was based on ratio of such expenses with export sales. Thus, such a view taken by the assessing officer cannot be disturbed without any difference in the facts and circumstances of the case. Thus, there is no merits in the impugned order passed under section 263 by the Commissioner for cancelling the assessment and to re-examine the same. Consequently, the impugned order passed under section 263 by the Commissioner it set aside and the assessment order passed by the assessing officer is upheld. [Para 15] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1755 (Mum-Trib) : (2013) 052 (II) ITCL 0447 : (2013) 156 TTJ 0525 : (2013) 087 DTR 0401

Income Tax Act, 1961

--Revision under section 263--Erroneous and prejudicial order Non-application of mind by assessing officer--Assessee-firm was engaged in business of export of embroidery items and supplying same to top fashion houses in Europe and U.S.A. Besides this, assessee was also engaged in power generation through windmills. Along with said return of income, assessee had filed audit report in Form 10CCB for claiming deduction under section 80-IA with regard to windmill undertaking. In the said report, assessee had mentioned that date of commencement and operation of undertaking was 29-9-2006, and the initial assessment year from which the deduction had been claimed was assessment year 2008-2009. Assessment was completed after making disallowance under section 14A of foreign travel expenses and excess payment of embroidery charges. The deduction claimed under section 80-IA as per audit report was allowed. Commissioner invoking section 263 held that windmill was installed in 2006 which commenced its operation on 29-9-2006 and first year of its operation, i.e., for assessment year 2007-08 assessee had shown loss on account of depreciation and interest and this loss was set off against export business of non-eligible units in assessment year 2007-08 itself. In this relevant year, i.e., 2008-09 profit had been claimed without setting off loss. Further, in assessment year 2009-10 deduction under section 80-IA was allowed after setting off loss. Said finding was also applicable for relevant assessment year and without setting off loss, deduction under section 80-IA was wrongly allowed. Further, foreign travel expenses were disallowed on fixed percentage of 4% of expenses without desired details and documents. Held :Not justified. Loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted in the period of ten years from the initial assessment year as contemplated or chosen by the assessee. Sub-section (5) of section 80-IA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post-amendment period, i.e., after 1-4-2000 by virtue of section 80-IA(2). Thus, on this count, there is no reason to uphold the cancellation of assessment order under section 263 on the ground that it is erroneous, in so far as it is prejudicial to the interests of Revenue. Foreign travel expenses of 4% also rightly disallowed. Thus, there is no any merits in the impugned order passed under section 263 by the Commissioner for cancelling the assessment and to re-examine the same. Consequently, the impugned order passed under section 263 by the Commissioner is set aside and the assessment order passed by the assessing officer is upheld.

Section 80-IA (5) is a non-obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income. Thus, the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year. It nowhere defines as to what is the initial assessment year. Prior to 1-4-2000, the initial assessment year was defined for various types of eligible assessees under section 80-IA (12). However, after the amendment brought in statute by the Finance Act, 1999, the definition of initial assessment year has been specifically taken away. Now, when the assessee exercises the option of choosing the initial assessment year as culled out in sub-section (2) of section 80-IA from which it chooses its 10 years of deduction out of 15 years, then only the losses of the years starting from the initial assessment year alone are to be brought forward as stipulated in section 80-IA(5). Loss prior to the initial assessment year which has already been set-off cannot be brought forward and adjusted into the period of ten years from the initial assessment year as contemplated or chosen by the assessee. It is only when the loss have been incurred from the initial assessment year, then the assessee has to adjust loss in the subsequent assessment years and it has to be computed as if eligible business is the only source of income and then only deduction under section 80-IA can be determined. This is the true import of section 80-IA (5). [Para 10] Sub-section (5) of section 80-IA will come into operation only from the initial assessment year or any subsequent assessment year. The option of choosing the initial assessment year is wholly upon the assessee in the post amendment period i.e., after 1-4-2000 by virtue of section 80-IA (2). [Para 12] The assessee's claim for initial assessment year i.e., assessment year 2008-2009 and its claim for deduction under section 80-IA made for the first time from assessment year 2008-2009, has not been disputed. Thus, the judgment relied upon by the Departmental Representative will not be applicable to the facts of the present case.[Para 14] Moreover, the claim of deduction under section 80-IA was based on possible legal view which has been allowed by the assessing officer, therefore, it cannot be held that the same is erroneous in so far as it is prejudicial to the interests of the Revenue. Merely because the assessing officer in the subsequent assessment year has followed Special Bench decision which admittedly was rendered with regard to the claim of deduction starting from the assessment year 1996-1997 wherein there was no concept of assessee choosing his option of initial assessment year in view of the provisions prior to the amendment, it cannot be held that the assessee's claim of initial assessment year being assessment year 2008-2009 and its claim for deduction allowed by the assessing officer under section 80-IA is erroneous in law. Thus, on this count, there is no any reason to uphold the cancellation of assessment order under section 263 on the ground that it is erroneous in so far as it is prejudicial to the interests of Revenue. [Para 15] Regarding disallowance of foreign travelling expenses, it is seen that on similar circumstances and facts, the assessing officer has disallowed 4% of the expenditure claimed which was based on ratio of such expenses with export sales. Thus, such a view taken by the assessing officer cannot be disturbed without any difference in the facts and circumstances of the case. Thus, there is no merits in the impugned order passed under section 263 by the Commissioner for cancelling the assessment and to re-examine the same. Consequently, the impugned order passed under section 263 by the Commissioner it set aside and the assessment order passed by the assessing officer is upheld. [Para 15]