By TIOL News Service

GAUHATI, FEB 25, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether when in the revision proceedings, the CIT accepts that the concerned undertaking had sought for deduction u/s 80IC claiming to be a mineral based industry and such claim was disallowed AO but allowed by the CIT(A), the issue stands concluded and there will be no scope for re-examination in the jurisdiction u/s 263. YES IS THE VERDICT.

Facts of the case:

The assessee company while filing its return claimed deduction u/s 80IC(2)(b)(iii) in respect of its 59 oil wells, by describing itself as a mineral based industry. The AO rejected this claim, though on a different ground that though each oil well was claimed to be an undertaking, a combined Form in 10CCB was filed instead of separate Form in respect of each oil well. Even though the issue as to whether the assessee was a mineral based industry, was not specifically analyzed, the AO assumed it to be correct and proceeded further, but rejected the claim on the technical non-compliance of filing separate Forms. On appeal, the CIT(A) granted benefit of deduction u/s 80IC. When this was the position, the CIT assumed jurisdiction u/s 263 indicating that the AO had not applied his mind on the basic issue as to whether the assessee was actually a mineral based industry or not. The assessee opposed this action, questioning the authority of CIT to initiate a revision u/s 263 when the said issue had already been concluded on the consideration made by the CIT(A). It was further contended that the revision u/s 263 was permissible only in respect of an issue which was not considered earlier before the CIT(A) and wherein the order passed by AO was erroneous & prejudicial to the interest of Revenue.

The CIT however, on adverting to the issue, held that assessee was not a mineral based industry. Accordingly, the AO was directed to modify the assessment in terms of the order passed in the said proceeding u/s 263. Pursuant thereto, the AO modified the assessment order and rejected the claim of assessee u/s 80IC. Not satisfied, the assessee preferred another appeal against such modified assessment order, which was however rejected by the CIT(A). The matter ultimately reached Tribunal, wherein the proceedings u/s 263 were set aside. However, no independent consideration as to whether the assessee was a mineral based industry or not, was not made by the ITAT.

High Court held:

++ a perusal of the provisions as contained u/s 263 would indicate that it provides for the Commissioner to call for and examine the records of any proceeding under the Act and, if he considers that any order passed therein by the AO is erroneous and it is prejudicial to the interest of Revenue, the Commissioner may after giving the assessee an opportunity of being heard, and after making such inquiry, pass order thereon including to enhance or modify or cancel an assessment and direct fresh assessment. In the present facts, the provision as contained in Clause (c) would also become relevant since apart from the Commissioner having the power to invoke the jurisdiction u/s 263, it is clarified that he can invoke such powers only in respect of erroneous portion of the order of AO causing prejudicial interest to the Revenue and such portion of the order not being a part of the consideration in any appeal, having been filed in respect of such assessment order to the CIT(A) and the matter not being concluded therein. Therefore, in the instant facts, what is also required to be taken note of is whether in the Assessment Order and the order passed by the CIT (A) in respect of the said assessment, the issue as to assessee claiming to be a mineral based industry was also an issue which was raised and taken note of in the proceedings whereunder the deduction was sought. In order to take note of the same, a close scrutiny of the assessment order would disclose that deduction u/s 80IC was an issue which had arisen for consideration since the deduction was sought on that basis. It is against the conclusion of AO in not allowing the deduction which was claimed u/s 80IC, the assessee was before the CIT(A), who took note of the claim for deduction as provided u/s 80IC and, in that light, having considered each oil well as an enterprise, has given the benefit of the deduction as claimed u/s 80IC, by concluding that each oil well produces crude oil and natural gas and therefore it satisfies also one of the tests for the purpose of claiming the benefit of Section 80IB & 80IC;

++ the counsel for assessee in order to substantiate the contention that the power u/s 263 cannot be invoked when the order of AO has merged in the order in appeal, has relied on various decision. On the other hand, the counsel for Revenue has relied on the decision of Supreme Court in the case of Commissioner of Income Tax, Gujarat-I, Ahmedabad –Vs.- Shri Arbuda Mills Ltd., Ahmedabad - 2002-TIOL-901-SC-IT-LB, wherein on the issue of merger, it has been held that the powers of Commissioner u/s 263 shall extend to such matters as has not been considered and decided in the appeal. From the decisions cited on either side, the law as enunciated would be clear that in order to consider the position as to whether the order of AO had merged in the order of CIT(A) and, in that context, whether the subject matter which was the issue in the assessment proceedings as also in the appellate proceedings before the CIT(A), and that in the revision proceedings before the CIT is the same, the facts involved in each case will have to be taken note so as to arrive at a conclusion whether the invocation of power u/s 263 to revise such assessment order is in respect of the same subject matter and the issue which had concluded in the assessment as also the appellate proceedings. The Assessment Order discloses that the claim for deduction as contemplated u/s 80IC was disallowed since the AO was of the view that the wells regarding which claim for deduction was made cannot be considered as 'undertaking' or 'enterprise' and despite claiming that wells to be independent production centre, single Form 10-CCB was submitted. The CIT(A) however, accepted that each oil well appear to satisfy the test and it was further held that each oil well produces crude oil and natural gas and, therefore, it satisfies also one of the tests for the purpose of claiming benefit of Section 80IB and 80IC;

++ now, a perusal of the revision proceedings u/s 263 discloses that the very issue which was considered by the CIT(A) and concluded was reopened, which is indicative by the observation of CIT, wherein he has stated that the perusal of the record shows that the AO had not examined or applied his mind on the basic issue as to whether the assessee is actually a mineral based industry or not. As noticed, the question of considering the wells of assessee as an undertaking was not accepted by the AO though the claim of mineral based industry was not rejected. Whether such acceptance was erroneous and whether the CIT(A) has committed an error in allowing the claim will lose its relevance when it is to be noticed only to the extent of finding out whether the same issue could have been examined in a subsequent revision proceeding u/s 263. When in the revision proceedings, the CIT accepts during the course of the order that the assessee had claimed deduction u/s 80IC claiming to be a mineral based industry and in that background when the claim was disallowed AO but allowed by the CIT(A), the issue would stand concluded and there would be no scope for re-examination in the jurisdiction u/s 263, as the assessment order has merged in the appellate order. The matter not having been examined in the same manner or to the same extent and depth is immaterial. In that view, the revision proceedings u/s 263 in the present context was not sustainable. In the instant case, it is noticed that the Assessment Officer had in fact disallowed the claim. Even if the order was erroneous in so far as considering or not considering the aspect of mineral based industry, the same did not suffer from the second vice of causing financial prejudice to the revenue, which was in fact disallowed by the AO but ultimately allowed by the CIT(A) which in any event cannot be corrected in a revision proceeding u/s 263.

(See 2019-TIOL-472-HC-GUW-IT)