CIT v. Eastern Medikit Ltd. - Taxpublishers.in

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The Tax PublishersITA No. 595 of 2011 2012 TaxPub(DT) 0404 (Del-HC) : (2011) 337 ITR 0056 : (2011) 202 TAXMAN 0572 : (2011) 058 DTR 0265 INCOME TAX ACT, 1961 --Revision under section 263--Validity Tribunal not decided issue in proper perspective--The respondent-assessee had filed return of income declaring income of Rs. 5,22,73,660. In this year, the assessee had also claimed deduction under section 80-IB. It also filed Audit Report in Form No.10CCB, wherein it was mentioned that the operation of the assessee-company commenced in financial year 1995-96 and the initial assessment year from which deduction is being claimed was assessment year 1996-97. The assessing officer had allowed the deduction to the assessee to the extent of Rs. 3,55,33,360. Commissioner initiated proceedings under section 263 observing that the assessee company had commenced its operation in financial year 1994-95. On this basis, initial assessment for which deduction was to be claimed under section 80-IB would be the assessment year 1995-96, since the deduction is available for 10 consecutive assessment years. Therefore, the assessee could have claimed deduction up to the assessment year 2004-05 only and hence, the assessee would not be entitled for any deduction under section 80-IB for the assessment year in question, i.e., 2005-06. The order of the Commissioner is not very happily worded, as it categorically states that the assessing officer had not applied his mind on the issue as to in which year, the assessee commenced its operation. If it is the financial year 1994-95, as viewed by the Commissioner, then for the instant assessment year, the assessee would not be entitled to deduction as that would be the 11th year. On the other hand, if the assessee commenced its operation in the financial year 1995-96, then for the assessment year the assessee would be entitled to deduction claimed being the 10th and last year availing deduction under section 80-IB. Thus, the year in which the assessee commenced its operation becomes material. The Commissioner, thus, asked the assessing officer to make the assessment afresh after giving reasonable opportunities for being heard. The assessee challenged this order by filing the appeal before the Tribunal which has set aside the order of the Commissioner holding that the year of commencement of operation is financial year 1995-96. *Held:* The Tribunal should not have decided issue on merits but it was necessary to decide the assumption of jurisdiction by the Commissioner under section 263. Neat submission made by the revenue, was that the basis of the assumption of the jurisdiction under section 263 by the Commissioner was that the assessing officer had not applied his mind as to whether the assessee commenced the operation in the financial year 1994-95 or 1995-96. Therefore, the Tribunal was required to only go into this aspect and to decide as to whether the exercise of jurisdiction by the Commissioner in the aforesaid circumstances was justified or not. It was not proper for the Tribunal to give its decision on merits and decide the year of commencement of operation by the respondent undertaking. It was submitted that by doing so, the Tribunal has exceeded its jurisdiction. [Para 8] There is force in the aforesaid submissions of the revenue. The assessee could not dispute that the assessing officer while framing the assessment had not adverted to this aspect at all. The year of commencement of operation would be relevant to find out as to whether the assessee would be entitled to deduction under section 80-IB for the assessment year 2005-06 as only on that determination, it would be known whether the instant year is the 10th year or the 11th year. Since this issue had not been gone into and without arriving at any finding on this aspect, the assessing officer allowed the exemption, it is clear that twin conditions laid down for exercising revisionary jurisdiction under section 263 stood satisfied inasmuch as the lack of inquiry/investigation resulted in allowing the deduction which could be erroneous and prejudicial to the interest of revenue, if it was the 11th year from the year when the operation commenced. [Para 9] The conjoint and accumulative reading of the Commissioner's order in its entirety would clearly show that the Commissioner had not conclusively determined that the year of commencement of the business was financial year 1994-95. On the contrary, he had categorically stated that before coming to any such conclusion, it was necessary to verify the records and for this purpose, he referred the matter back to the assessing officer for afresh assessment after giving the assessee reasonable opportunity of being heard. In a case like this, the Tribunal could not have gone into the merits which also, is done in a perfunctory manner as it would be clear from the reading of Para 7. Once it is found that the invocation of the provisions of section 263 was proper and valid, such an order passed by the Commissioner could not have been tinkered with by the Tribunal by going into the merits of this issue. Since these contentions were satisfied and the matter was relegated to the assessing officer to conduct an inquiry, the Tribunal should have limited its discussion focusing on the proprietary of order by the Commissioner invoking his power under section 263 and keeping in view the scope of that provision. [Para 12] No doubt, where the Commissioner while exercising powers under section 263, sets aside the order of the assessing officer on merits as well and gives his categorical finding on the issue involved, naturally the Tribunal will be within its right to examine as to whether the decision on the said issue was proper or not and for this purpose, the Tribunal itself would be entitled to examine the issue on merits. However, where the issue was not examined by the assessing officer and on this ground Commissioner revised the order without giving his own findings, but directing the assessing officer to do the necessary exercise, it was not proper for the Tribunal to decide the same, converting itself to a Court of first instance and deciding the factual aspect on which neither assessing officer nor Commissioner (Appeals) had returned any findings. [Para 14] The Tribunal erred in law in holding that the assessee is entitled for deduction under section 80-IB for the present assessment year, i.e., 2005-06 as that aspect needs to be considered by the assessing officer afresh. [Para 16] This appeal is accordingly allowed and the order of the Commissioner is restored. However, it is made clear that the Commissioner has not given any findings that the operations of the assessee commenced for the year financial year 1994-95. It is also clarified that the assessing officer will not reopen the entire assessment, but would only deal with this limited issue of admissibility of deduction under section 80-IB. [Para 17] SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No. 595 of 2011
2012 TaxPub(DT) 0404 (Del-HC) : (2011) 337 ITR 0056 : (2011) 202 TAXMAN 0572 : (2011) 058 DTR 0265

INCOME TAX ACT, 1961

--Revision under section 263--Validity Tribunal not decided issue in proper perspective--The respondent-assessee had filed return of income declaring income of Rs. 5,22,73,660. In this year, the assessee had also claimed deduction under section 80-IB. It also filed Audit Report in Form No.10CCB, wherein it was mentioned that the operation of the assessee-company commenced in financial year 1995-96 and the initial assessment year from which deduction is being claimed was assessment year 1996-97. The assessing officer had allowed the deduction to the assessee to the extent of Rs. 3,55,33,360. Commissioner initiated proceedings under section 263 observing that the assessee company had commenced its operation in financial year 1994-95. On this basis, initial assessment for which deduction was to be claimed under section 80-IB would be the assessment year 1995-96, since the deduction is available for 10 consecutive assessment years. Therefore, the assessee could have claimed deduction up to the assessment year 2004-05 only and hence, the assessee would not be entitled for any deduction under section 80-IB for the assessment year in question, i.e., 2005-06. The order of the Commissioner is not very happily worded, as it categorically states that the assessing officer had not applied his mind on the issue as to in which year, the assessee commenced its operation. If it is the financial year 1994-95, as viewed by the Commissioner, then for the instant assessment year, the assessee would not be entitled to deduction as that would be the 11th year. On the other hand, if the assessee commenced its operation in the financial year 1995-96, then for the assessment year the assessee would be entitled to deduction claimed being the 10th and last year availing deduction under section 80-IB. Thus, the year in which the assessee commenced its operation becomes material. The Commissioner, thus, asked the assessing officer to make the assessment afresh after giving reasonable opportunities for being heard. The assessee challenged this order by filing the appeal before the Tribunal which has set aside the order of the Commissioner holding that the year of commencement of operation is financial year 1995-96. Held: The Tribunal should not have decided issue on merits but it was necessary to decide the assumption of jurisdiction by the Commissioner under section 263.

Neat submission made by the revenue, was that the basis of the assumption of the jurisdiction under section 263 by the Commissioner was that the assessing officer had not applied his mind as to whether the assessee commenced the operation in the financial year 1994-95 or 1995-96. Therefore, the Tribunal was required to only go into this aspect and to decide as to whether the exercise of jurisdiction by the Commissioner in the aforesaid circumstances was justified or not. It was not proper for the Tribunal to give its decision on merits and decide the year of commencement of operation by the respondent undertaking. It was submitted that by doing so, the Tribunal has exceeded its jurisdiction. [Para 8] There is force in the aforesaid submissions of the revenue. The assessee could not dispute that the assessing officer while framing the assessment had not adverted to this aspect at all. The year of commencement of operation would be relevant to find out as to whether the assessee would be entitled to deduction under section 80-IB for the assessment year 2005-06 as only on that determination, it would be known whether the instant year is the 10th year or the 11th year. Since this issue had not been gone into and without arriving at any finding on this aspect, the assessing officer allowed the exemption, it is clear that twin conditions laid down for exercising revisionary jurisdiction under section 263 stood satisfied inasmuch as the lack of inquiry/investigation resulted in allowing the deduction which could be erroneous and prejudicial to the interest of revenue, if it was the 11th year from the year when the operation commenced. [Para 9] The conjoint and accumulative reading of the Commissioner's order in its entirety would clearly show that the Commissioner had not conclusively determined that the year of commencement of the business was financial year 1994-95. On the contrary, he had categorically stated that before coming to any such conclusion, it was necessary to verify the records and for this purpose, he referred the matter back to the assessing officer for afresh assessment after giving the assessee reasonable opportunity of being heard. In a case like this, the Tribunal could not have gone into the merits which also, is done in a perfunctory manner as it would be clear from the reading of Para 7. Once it is found that the invocation of the provisions of section 263 was proper and valid, such an order passed by the Commissioner could not have been tinkered with by the Tribunal by going into the merits of this issue. Since these contentions were satisfied and the matter was relegated to the assessing officer to conduct an inquiry, the Tribunal should have limited its discussion focusing on the proprietary of order by the Commissioner invoking his power under section 263 and keeping in view the scope of that provision. [Para 12] No doubt, where the Commissioner while exercising powers under section 263, sets aside the order of the assessing officer on merits as well and gives his categorical finding on the issue involved, naturally the Tribunal will be within its right to examine as to whether the decision on the said issue was proper or not and for this purpose, the Tribunal itself would be entitled to examine the issue on merits. However, where the issue was not examined by the assessing officer and on this ground Commissioner revised the order without giving his own findings, but directing the assessing officer to do the necessary exercise, it was not proper for the Tribunal to decide the same, converting itself to a Court of first instance and deciding the factual aspect on which neither assessing officer nor Commissioner (Appeals) had returned any findings. [Para 14] The Tribunal erred in law in holding that the assessee is entitled for deduction under section 80-IB for the present assessment year, i.e., 2005-06 as that aspect needs to be considered by the assessing officer afresh. [Para 16] This appeal is accordingly allowed and the order of the Commissioner is restored. However, it is made clear that the Commissioner has not given any findings that the operations of the assessee commenced for the year financial year 1994-95. It is also clarified that the assessing officer will not reopen the entire assessment, but would only deal with this limited issue of admissibility of deduction under section 80-IB. [Para 17]