The Tax Publishers2021 TaxPub(DT) 3733 (Pune-Trib)

INCOME TAX ACT, 1961

Section 263

As there was lack of examination on AO's part as regards allowability of deduction under section 80-IC, therefore, assessment order was rightly treated as erroneous and prejudicial to the interest of revenue.

Revision under section 263 - Erroneous and prejudicial order - Lack of enquiry by AO - Issue under revision not examined by AO

Pr. CIT treated order passed by AO as erroneous and prejudicial to the interest of revenue on the ground of AO not having examined eligibility of assessee for claiming deduction under section 80-IC. In respect of the profits earned on sales made to vendors directly from Parwanoo Unit. Assessee contended that original assessment order was appealed against before CIT(A) and therefore, assessment order got merged with the order of CIT(A). Held: Subject matter of the appeal before CIT(A) was only deduction under section 80-IC in respect of profits earned on inter-unit sales and not in respect of profits earned on the sales made to vendors directly from Parwanoo unit. Therefore, this issue was neither considered and decided by the CIT(A) nor was the subject matter of appeal before him. Thus, the doctrine of merger had no application to the facts of the present case in view of plain provisions of clause (c) of Explanation 2 of sub-section (1) of section 263. Amount of profits that were claimed as deduction under section 80-IC comprised of two components, namely, (i) the profit on inter-unit sales of Rs. 14.97 crores (ii) the profits on sales of Rs. 13.47 crores made to vendors directly from Parwanoo Unit. From perusal of assessment order as well as the material on record, it was clear that AO had examined the claim in relation to profits earned on the inter-unit sales of Rs. 14,97,23,544 and disallowed the deduction of Rs. 10,90,23,322 under section 80-IC. There was nothing on record to suggest that AO had examined the claim of deduction under section 80-IC in relation to the profits earned from sales made to the vendors directly from Parwanoo Unit. The facts of claim undoubtedly demand an enquiry into the claim as to eligibility as well as quantification as the purchases were made from Pune Unit and the only activity done at Pune Unit was only CD writing and packing activities, which no doubt, not of a much value addition and therefore, claim was required to be examined with reference to the provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA in view of the admitted fact that the software developed was transferred from Pune Unit to Parwanoo Unit. As there was lack of examination, therefore, assessment order was rightly treated as erroneous and prejudicial to the interest o f revenue.

Applied:Pr. CIT v. Zuari Maroc Phosphates Ltd. (2021) 432 ITR 316 (Bom-HC) : 2021 TaxPub(DT) 765 (Bom-HC) and CIT v. Ballarpur Industries Limited (2017) 85 Taxamnn.com 10 (Bom-HC) : 2017 TaxPub(DT) 4015 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13



IN THE ITAT, PUNE BENCH

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com