Case Law Details

Case Name : M/s Aadhar Rice Mills Pvt. Ltd. Vs ITO (ITAT Ranchi)
Appeal Number : ITA No. 294/RAN/2018
Date of Judgement/Order : 24/05/2019
Related Assessment Year : 2013-2014
Courts : All ITAT (6332) ITAT Ranchi (5)

M/s Aadhar Rice Mills Pvt. Ltd. Vs ITO (ITAT Ranchi)

I failed to understand on which basis the ld. Pr. CIT held that the assessment order dated 27.12.2016 is erroneous or prejudicial to the interest of revenue without calling and perusing the relevant assessment records an merely on the basis of proposal for revision sent to him by the ITO, Ward-1, Ranchi. From the assessment order dated 27.12.2016, I also observe that at page 3, the AO has examined the claim of the assessee u/s.80IB of the Act and thereafter held that the assessee is entitled for claim of deduction u/s.80IB(11A) of the Act, hence, it is not a case of no enquiry.

Provisions of Section 263 of the Act, the ld. Pr.CIT is empowered to revise the assessment order where such assessment order is erroneous or prejudicial to the interest of revenue after calling and examining the relevant assessment records and holding that either there is no enquiry or there is insufficient or inadequate enquiry by the AO on a particular issue but no such exercise has been undertaken by the ld. Pr. CIT while passing the impugned order u/s.263 of the Act either.

Therefore,  ld. Pr. CIT has proceeded to revise the scrutiny assessment order and directing the AO to decide the issue afresh i.e. for making rowing enquiry which is not permissible u/s.263 of the Act. It is the duty of the ld. Pr.CIT that in a case of insufficient or inadequate enquiry. Further necessary enquiry has to be conducted by the revisionary authority and thereafter only the assessment order can be tagged as erroneous or prejudicial to the interest of revenue. In absence of such exercise, revision of assessment order u/s.263 of the Act has to be held as passed without application of mind and without following mandate of the legislature provided u/s.263 of the Act.

Keeping in view the foregoing discussions, I have no hesitation to hold that the Pr. CIT was not justified and correct in revising the scrutiny assessment order u/s.263 of the Act merely on a proposal sent to him by the ITO, Ward-1 ,Ranchi without verification and examination of relevant assessment record and without any positive findings that the order of the AO is erroneous or prejudicial to the interest of revenue.

Therefore, the issuance of notice u/s.263 of the Act and the impugned order of ld. Pr. CIT and all consequential proceedings and orders, if any, are hereby quashed and appeal of the assessee is allowed.

FULL TEXT OF THE ITAT JUDGEMENT

The assessee has filed above two appeals out of which ITA No.294/Ran/2018 has been filed against the order of Commissioner of Income Tax (Appeals), Ranchi, dated 09.11.2017, passed in First Appeal No.CIT(A), Ranchi/10058/2016-17 for the assessment year 2013-2014, arising out of order passed by the Assessing Officer u/s.143(3) of the Act, dated 30.03.2016, whereas ITA No.201/Ran/2019 has been filed by the assessee for the assessment year 2014-2015 against the order passed by the Pr.CIT, Ranchi, dated 31.03.2019 u/s.263 of the Act.

ITA No.294/Ran/2018 (AY : 2013-2014)

2. The sole ground raised by the assessee in the present appeal is as under :-

1. For that, under the facts and circumstances of the case the Ld. CIT(A) erred in confirming the disallowance so made by the Ld. Assessing Officer for the claim of deduction u/s 80IB (1 1A) amounting to Rs. 16,74,407/- without following the rule of natural justice which states that in case of inconsistency, the view taken in favour of the assessee shall be upheld.

3. Brief facts of the case are that the assessee, which runs a ricemill filed its return of income on 26.11.2013 declaring NIL income. Upon selection of the case for scrutiny, notices u/s. 143(2)/142(1) of the Act were issued. On examination of the books of accounts the Ld. Assessing Officer came to the conclusion that the assessee’s business was not eligible for deduction u/s.80IB(1 1A) of the Act and disallowed the claim of the assessee of Rs.16,74,407/- along with disallowance of 10% of the oil loss claimed by the assessee amounting to Rs.2,01 ,090/- assessing total income of the assessee at Rs.18,75,497/-. Against the assessment order, the assessee preferred appeal before the CIT(A) and the CIT(A) allowed the loss claimed by the assessee on account of loss in oil and upheld the disallowance made by the AO on account of deduction claimed by the assessee u/s.80IB(1 1A) of the Act.

4. Now, the assessee is in further appeal before the Tribunal.

5. I have heard arguments of the both the sides and carefully perused the material available on the record of the Tribunal.

6. Ld. Authorised Representative (AR) of the assessee submitted that the ld. CIT(A) has erred in confirming the disallowance made by the ld. AO for claim of deduction u/s.80IB(1 1A) of the Income Tax Act, 1961 (for short the Act1961) amounting to Rs.16,74,407/-.

7. Placing reliance on the decison of Honble Madras High Court in the case of CIT Vs. M/s Muthuramalingam Modern Rice Mill, in Tax Case Appeal Nos.51 to 55 of 2009, judgment dated 20.02.2019, ld. AR submitted that the Honble High Court in paras 14 to 20 has decided that the activity of dehusking of paddy into rice will not amount to “manufacture or production” and there is no justifcation to give a narrower meaning to these terms, which, by themselves independently or jointly as employed in the said provisions of Section 80IA of the Act are wide enough to cover the industrial activity undergone by the assessee. Ld. AR also submitted that during the scrutiny assessment u/s.143(3) of the Act for A.Y.2014- 2015 in the assessment order dated 27.12.2016 the claim of the assessee u/s.80IB of the Act was allowed and on recommendation of the AO i.e. ITO Ward-1 Ranchi, the ld. ACIT revised the assessment order u/s.263 of the Act.

8. Replying to the above, ld. DR submitted that during scrutiny assessment proceedings u/s.143(3) of the Act the AO thoroughly examined the claim of the assessee u/s. 80IB(1 1A) of the Act and found the same as not tenable and allowable to the assessee because the assessee is not engaged in the business of integrated bulk handling storage & transportation of food grains and in fact the assessee is engaged in dehusking of paddy into rice and such this is not qualified for deduction u/s.80IB(1 1A) of the Act.

9. Ld. AR placing rejoinder to the above, drew the attention of the Bench towards provisions of sub-section (11A) to Section 80IB of the Act and submitted that the amount of deduction in a of undertaking pertaining to profit from business of processing, handling, storage and transportation of food-grains shall be 100% of the profits and gains derived from such undertaking for five assessment years beginning with the initial assessment year s allowable to the assessee. Therefore, keeping in view the proposition rendered by the Honble Madras High Court in the case of M/s Muthuramalingam Modern Rice Mill (supra), the claim of the assessee is allowable u/s.80IB(1 1A) of the Act.

10. On careful consideration of the above rival submissions, first of all, I may point out that the assessee has been allowed deduction u/s.80IB(11A) of the Act in the assessment order 27.12.2016 for A.Y.2014-2015 passed in scrutiny assessment order u/s.143(3) of the Act, however, such order has been revised by the ld. CIT(A) by invoking provisions of Section 263 of the Act.

11. Secondly, from the observations recorded by Their Lodships in the judgment of Hon’ble M dras High Court n the case of M/s Muthuramalingam Modern Rice Mill (supra) from paras 14 to 20, I observe that the Honbe High Court has clearly held that there is no reason to hold that the activity of dehusking of paddy into rice will not amount to “manufacture or production” and there iino justification to give a narrower meaning to these terms. From para 5 of the judgment of the Honble High Court, I observe that Their Lordships adjudicated the issue/question raised by the Revenue that the process of dehusking paddy for obtaining rice does not amount o “manufacture or production” and, therefore assessee was not entitled to said benefit u/s.80IA/80IB of the Act. As I have noted above that in operative p aras 14 to 20, the H onble Madras High Court in the case of M/s Muthuramalingam Modern Rice Mill (supra) answered the question in negative i.e against the Revenue and in favour of the assessee by holding that there is no reason to hold that the activity of dehusking of paddy into rice will not amount to “manufacture or production” and there is no justificaion to give a narrower meaning to these terms, therefore, the assessee is entitled for claim of deduction u/s.80IB(1 1A) of the Act.

12. On the basis of foregoing discussions, I am inclined to hold that the AO was not correct in disallowing the benefit of Section 80IB(1 1A) of the Act to the assessee and, thus, the ld. CIT(A) was not also correct and justified in confirming the disallowance made by the AO. Accordingly, the sole ground of assessee is allowed and the AO is directed to allow the deduction as claimed by the assessee u/s.80IB(1 1A) of the Act. Thus, appeal of the assessee in ITA No.294/Ran/2018 is allowed.

ITA N o.201 /Ran/201 9 (2014-2015):

13. This appeal is filed by the assessee against the order passed by the CIT u/s.263 of the Act for the assessment year 2014-2015, dated 31.03.2019 on the proposal given by ITO, Ward-1, Ranchi, whereby setting aside the assessment framed by the AO u/s.143(3) of the Act, dated 27.12.2016 for fresh assessment.

14. I have heard arguments of the both the sides and carefully perused the material available on the record of the Tribunal.

15. AR submitted that from bare reading of the impugned order passed u/s.263 of the Act, it is clearly discernible that the ld. Pr.CIT has invoked revisonary power on the proposal of revision by the ITO, Ward-1, Ranchi and thereafter in para 3 jumped to a conclusion that assessment order passed by the AO u/s.143(3) of the Act, dated 27.12.2016 is erroneous and prejudicial to the interest of Revenue without any findings, examinations of relevant assessment record or observations. Ld. AR strenuously pointed out that in para 4 the Pr. CIT reproduced the reply of the assessee and thereafter in para 5 observed that the order for A.Y.2013-2014 was passed after the assessment order framed for A.Y.2014-2015, as such the AO could not consider this issue in the light of order of the ld. CIT(A) and then set aside the impugned assessment order invoking Section 263 of the Act. Ld. AR submitted that when the order of ld. CIT(A) for A.Y.2013-2014, dated 9.11.2017 was not in existence and when the AO passed assessment order on 27.12.2016 for A.Y. 2014-2015 then how the ld. Pr. CIT can expect from the AO to consider the non-existence order while framing the scrutiny assessment order. Ld. AR strongly contended that this cannot be a basis for valid assumption of jurisdiction u/s.263 of the Act for revision of the order. Ld. AR also submitted that the ld. Pr. CIT in last para of the order set aside the assessment order and directed the AO to decide the issue afresh in the light of the appellate order passed by the ld CIT(A) for A.Y.2013-2014 after affording reasonable opportunity of hearing to the assessee, without application of mind and without holding that on what account or reasons the assessment order passed by the AO is erroneous and prejudicial to the interest of revenue. Ld. AR also submitted that it is not a case of non-enquiry or inadequate enquiry which could allege the assessment order as erroneous and prejudicial to the interest of revenue, therefore, the revision of scrutiny assessment order u/s.263 of the Act is not permissible. Therefore, the impugned order may kindly be quashed.

16. Replying to the above, ld. DR vehemently relied on the impugned order passed by ld. Pr. CIT and submitted that during the scrutiny assessment proceedings, the AO did not consider the first appellate order passed by the ld. CIT(A) for A.Y.2013-2014 and did not make any enquiry or verification pertaining to the claim of the assessee u/s.80IB(1 1A) of the Act, therefore, ld. Pr.CIT was right in invoking the provisions of Section 263 of the Act for revision of the assessment order which is not only erroneous but prejudicial to the interest of revenue.

17. On careful consideration, first of all, from careful reading of the impugned order passed by ld. Pr. CIT u/s.263 of the Act, I observe that in para 2 ld. Pr. CIT noted that a proposal for revision sent to him by ITO, Wrd-1, Ranchi, in para 3, ld Pr. CIT, without any discussion or adjudication jumped, to a conclusion that the scrutiny assessment order dated 27.12.2016 is erroneous and prejudicial to the interest of revenue. Thereafter in para 4 ld. Pr. CIT reproduced the reply of the assessee to the notice u/s.263 of the Act and in para 5 observed that the ld. CIT(A) has dismissed the appeal of the assessee for A.Y.2013-2014 vide order dated 9.11.2017 and this order has been passed after the assessment order was framed for A.Y.2014-2015 and the AO could not consider this issue in the light of said order of ld.CIT(A), therefore, the impugned assessment order needs to be set aside to the file of AO. Finally, in last para 6 ld. Pr. CIT directed the AO to decide the issue afresh in the light of appellate order passed by ld. CIT(A) after affording reasonable opportunity of hearing to the assessee.

18. In view of the above analysis of the impugned order, I failed to understand on which basis the ld. Pr. CIT held that the assessment order dated 27.12.2016 is erroneous or prejudicial to the interest of revenue without calling and perusing the relevant assessment records an merely on the basis of proposal for revision sent to him by the ITO, Ward-1, Ranchi. From the assessment order dated 27.12.2016, I also observe that at page 3, the AO has examined the claim of the assessee u/s.80IB of the Act and thereafter held that the assessee is entitled for claim of deduction u/s.80IB(11A) of the Act, hence, it is not a case of no enquiry. In my humble understanding of provisions of Section 263 of the Act, the ld. Pr.CIT is empowered to revise the assessment order where such assessment order is erroneous or prejudicial to the interest of revenue after calling and examining the relevant assessment records and holding that either there is no enquiry or there is insufficient or inadequate enquiry by the AO on a particular issue but no such exercise has been undertaken by the ld. Pr. CIT while passing the impugned order u/s.263 of the Act either. Therefore, I have no hesitation to hold that ld. Pr. CIT has proceeded to revise the scrutiny assessment order and directing the AO to decide the issue afresh i.e. for making rowing enquiry which is not permissible u/s.263 of the Act. It is the duty of the ld. Pr.CIT that in a case of insufficient or inadequate enquiry. Further necessary enquiry has to be conducted by the revisionary authority and thereafter only the assessment order can be tagged as erroneous or prejudicial to the interest of revenue. In absence of such exercise, revision of assessment order u/s.263 of the Act has to be held as passed without application of mind and without following mandate of the legislature provided u/s.263 of the Act. Keeping in view the foregoing discussions, I have no hesitation to hold that the Pr. CIT was not justified and correct in revising the scrutiny assessment order u/s.263 of the Act merely on a proposal sent to him by the ITO, Ward-1 ,Ranchi without verification and examination of relevant assessment record and without any positive findings that the order of the AO is erroneous or prejudicial to the interest of revenue. Therefore, the issuance of notice u/s.263 of the Act and the impugned order of ld. Pr. CIT and all consequential proceedings and orders, if any, are hereby quashed and appeal of the assessee is allowed.

19. In the result, both appeals of the assessee are allowed.

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