Cairn Energy India Pty Limited, Haryana V. DIT, CHENNAI

ITA 714/CHNY/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64690 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 14-05-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAYANTHI KRISHNAN
• Assessee Lawyers: C S AGARWAL
• Keywords: Opportunity of being heard; Principle of natural justice; Question of law; Scheme of amalgamation
• Section: 143(3); 80IB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 714/MDS/2009 ASSESSMENT YEAR: 2004-05 M/S CAIRN ENERGY INDIA PVT. LTD., 3 RD & 4 TH FLOOR, VIPUL PLAZA, SUNCITY, SECTOR-54, GURGAON 122 002. HARYANA. PAN : AAACC3097L (APPELLANT) V. THE DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), CHENNAI - 600 034. (RESPONDENT) APPELLANT BY : SHRI C.S. AGARWAL, ADVOCATE RESPONDENT BY : SMT. JAYANTHI KRISHNAN, C IT DATE OF HEARING : 4.12.2012 DATE OF PRONOUNCEMENT : 20.12.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT CHALLENGE S AN ORDER DATED 12.3.2009 PASSED BY DIRECTOR OF INCOME-TAX (INTERNA TIONAL TAXATION), CHENNAI, UNDER SECTION 263 OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') INTER ALIA, SETTING ASIDE THE ASSESSMENT FOR THE IM PUGNED ASSESSMENT YEAR AND DIRECTING THE A.O. TO EXAMINE THE ALLOWABI LITY OF DEDUCTION 2 I.T.A. NO. 714/MDS/09 CLAIMED BY THE ASSESSEE UNDER SECTION 80IB OF THE A CT AND FURTHER, DIRECTING HIM TO RECOMPUTE SUCH A DEDUCTION, AS PER LAW. 2. FACTS APROPOS ARE THAT ASSESSEE, IS A COMPANY IN CORPORATED IN NEW SOUTH WALES, AUSTRALIA AS A SUBSIDIARY OF ONE M /S CAIRN ENERGY PLC. INCORPORATED IN EDINBURGH, UK. ASSESSEE IS EN GAGED IN THE BUSINESS OF EXPLORATION AND PRODUCTION OF OIL AND G AS IN INDIA. IT HAD ACQUIRED PARTICIPATING INTEREST IN THE FOLLOWING OI L AND GAS BLOCKS:- SL.NO. BLOCK OF OIL AND GAS FIELD AREA 1. RAVVA KRISHNA GODAVARI 2. CB - OS/2 CAMBAY OFFSHORE 3. KG - OS/6 KRISHNA GODAVARI 4. RJ/OS/90/1 RAJASTHAN 5. KG/DWN/98 - 2 KRISHNA GODAVARI FOR ACQUIRING SUCH PARTICIPATING INTEREST, ASSESSEE HAD ENTERED INTO PRODUCTION SHARING CONTRACTS WITH GOVERNMENT OF IND IA AND JOINT OPERATING AGREEMENT WITH OTHER JOINT VENTURERS INVO LVED IN EXPLORATION OF OIL AND OPERATION OF OIL FIELDS. AS PER THE JOINT VENTURE AGREEMENTS, ASSESSEE HAD TO OPERATE EACH OF THE BLOCK. 3. ASSESSEE FILED ITS RETURN FOR THE IMPUGNED ASSES SMENT YEAR DECLARING AN INCOME OF ` 49,16,89,833/-. ASSESSEE HAD ALSO SOUGHT DEDUCTION OF ` 68,55,77,018/- UNDER SECTION 80-IB(9) OF THE ACT. RETURNED INCOME WAS AFTER CLAIMING SUCH DEDUCTION. AS PER THE ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, ASSESSING 3 I.T.A. NO. 714/MDS/09 OFFICER HAD SOUGHT JUSTIFICATION FOR CLAIMING OF DE DUCTION UNDER SECTION 80-IB OF THE ACT. ON 3 RD NOVEMBER, 2006, ASSESSEE HAD SUBMITTED A LETTER TO ASSESSING OFFICER GIVING DETAILS OF CERTA IN CLAIMS. COPIES OF THE PRODUCTION SHARING CONTRACTS, IN RELATION TO RAVVA SATELLITE GAS FIELD AND LAKSHMI GAS FIELD FOR WHICH SUCH DEDUCTION WAS CLAI MED, AS ALSO, BREAK-UP OF EXPLORATION AND DEVELOPMENT EXPENSES WE RE INTER ALIA PROVIDED THROUGH THIS LETTER. IT WAS MENTIONED IN SUCH LETTER THAT OF THE TWO UNITS, NAMELY, SATELLITE GAS FIELD AND LAKSHMI GAS FIELD ON WHICH DEDUCTIONS UNDER SECTION 80-IB(9) WERE BEING CLAIME D, SATELLITE GAS FIELD COMMENCED PRODUCTION IN SEPTEMBER, 2001 AND L AKSHMI GAS FIELD COMMENCED PRODUCTION IN NOVEMBER, 2002. ASSE SSEE ALSO MENTIONED THAT COMPUTATION OF SUCH DEDUCTION WAS DO NE ON SIMILAR LINES IN ITS RETURNS FOR THE PRECEDING ASSESSMENT YEARS. AS PER THE ASSESSEE, THESE WERE DULY SUPPORTED BY CERTIFICATES FROM A CH ARTERED ACCOUNTANT. THEREAFTER, ASSESSING OFFICER COMPLETED THE ASSESSM ENT ON 28.12.2006 UNDER SECTION 143(3) MAKING CERTAIN DISALLOWANCE FO R CLAIMS LIKE SITE RESTORATION COST, SOFTWARE PURCHASE AND CLUB MEMBER SHIP FEES. HOWEVER, DEDUCTION UNDER SECTION 80-IB(9) WAS ALLOW ED AS CLAIMED, IN FULL. 4. ON 21.1.2009, DIT (INTERNATIONAL TAXATION) ISSUE D A NOTICE UNDER SECTION 263 OF THE ACT PROPOSING TO INVOKE THE POWE RS VESTED ON HIM 4 I.T.A. NO. 714/MDS/09 UNDER THAT SECTION, WITH REGARD TO THE ORDER OF ASS ESSMENT CONSIDERING IT TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. REASON MENTIONED BY THE DIT (INTERNATIONAL TAXATION) IN TH E SHOW CAUSE NOTICE, IS REPRODUCED HEREUNDER:- THE ASSESSEE COMPANY CLAIMED DEDUCTION U/S 80IB FOR T HE ASSESSMENT YEAR 2004-05 IN RESPECT OF TWO UNITS VIZ. (I ) RAVA SATELLITE GAS UNIT AND (II) LAKSHMI GAS FIELD TO THE EXTENT O F ` 20,16,10,345 AND ` 48,39,66,673 RESPECTIVELY. THE SAME WAS ALLOWED BY THE AS SESSING OFFICER IN THE ASSESSMENT U/S 143(3) DATED 28.12.2006. THE CLAIM OF THE COMPANY FOR DEDUCTION U/S 80IB(9) HAS NOT BEEN COMPUT ED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 80IB(13) READ WITH SECT ION 80IA(5). HENCE IT IS CLEAR THAT THE ACTION OF THE ASSESSING OFFI CER IN COMPUTING DEDUCTION U/S 80IB IN THE ORDER U/S 143(3) DATED 28.12.2006 H AS RENDERED THE ASSESSMENT AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. 5. ON THE ABOVE NOTICE, ASSESSEE PRIMARILY REPLIED THAT THE ASSESSMENT WAS COMPLETED AFTER DUE EXAMINATION. AS PER THE ASSESSEE, THE DEDUCTION WAS COMPUTED AS REQUIRED UN DER SECTION 80- IB(13) READ ALONG WITH SUB-SECTION (5) AND SUB-SECT IONS (7) TO (12) OF SECTION 80-IA. REPRODUCING SUB-SECTION (5) AND SUB -SECTIONS (7) TO (12) OF SECTION 80-IA, ASSESSEE SUBMITTED THAT ASSESSING OFFICER HAD DULY EXAMINED ITS CLAIM AND ALLOWED IT AFTER SUCH EXAMIN ATION. RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT V. GABRIEL INDIA LIMITED (203 ITR 108), ASSESSEE ARGUED THAT D IT COULD NOT SUBSTITUTE HIS JUDGMENT WITH THAT OF ASSESSING OFFI CER AND COULD ALSO NOT SAY THAT THE ORDER OUGHT HAVE BEEN WRITTEN MORE ELA BORATELY. RELIANCE 5 I.T.A. NO. 714/MDS/09 WAS ALSO PLACED ON THE DECISION OF HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF SILVER CLOUD ESTATES PVT. LTD. V. STATE OF TAMIL NADU (219 ITR 244) IN SUPPORT OF ITS CONTENTION THAT IF THERE WAS ANY PROPOSAL TO REVISE AN ORDER OF SUBORDINATE AUTHORITY, IT WAS OB LIGATORY ON THE PART OF REVISIONAL AUTHORITY TO PUT FORWARD ALL THE RELEVAN T MATERIALS BEFORE THE ASSESSEE AND GIVING IT AN OPPORTUNITY FOR REBUTTAL. FURTHER RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE ALLAHABAD HI GH COURT IN THE CASE OF CIT V. TAJ PRINTERS (178 ITR 384) FOR ARGUING TH AT DIT WAS UNDER AN OBLIGATION TO CITE THE POINTS AND RECORD THE REASON WHY HE CONSIDERED THE ORDER OF ASSESSING OFFICER ERRONEOUS AND PREJUDICIA L TO THE INTERESTS OF REVENUE. IN ANY CASE, AS PER THE ASSESSEE, IT HAD DULY COMPLIED WITH PROVISIONS OF SECTION 80-IA(5) AND ALL THE SUB-SECT IONS (7) TO (12) OF SECTION 80-IA. THEREFORE, ACCORDING TO IT, THE CLA IM UNDER SECTION 80- IB(9) WAS AS PER LAW. ASSESSEE ONCE AGAIN POINTED OUT THAT ITS ACCOUNTS WERE AUDITED AND REPORTS OF THE AUDITORS WERE DULY ATTACHED TO THE RETURN. ASSESSEE ALSO MENTIONED THAT SUB-SECTIONS (8) TO (12) OF SECTION 80-IA WERE NOT AT ALL APPLICABLE TO IT. 6. HOWEVER, DIT(INTERNATIONAL TAXATION) WAS NOT IMP RESSED. ACCORDING TO DIT (INTERNATIONAL TAXATION), FOR THE RAVVA SATELLITE GAS UNIT, ONE OF THE UNITS ON WHICH DEDUCTION WAS CLAIM ED UNDER SECTION 80- IB, ASSESSEE HAD NEVER DECLARED THE FIRST YEAR OF C OMMERCIAL PRODUCTION. 6 I.T.A. NO. 714/MDS/09 SUCH A DECLARATION, IN HIS OPINION, WAS ESSENTIAL. FURTHER, AS PER DIT (INTERNATIONAL TAXATION), ASSESSEE HAD NOT MAINTAIN ED SEPARATE ACCOUNTS FOR THE UNITS ON WHICH IT HAD CLAIMED DEDU CTION UNDER SECTION 80-IB OF THE ACT FROM THE INCEPTION OF SUCH UNITS. ASSESSEE HAD FILED ONLY CONSOLIDATED PROFIT & LOSS ACCOUNTS AND BALANC E SHEET FOR ALL THE BLOCKS, TOGETHER. AS PER DIT(INTERNATIONAL TAXATIO N), SATELLITE GAS UNIT WAS ONLY A PART OF RAVVA BLOCK, WHICH WAS IN OPERAT ION SINCE 1994 AND WAS NOT A SEPARATE UNDERTAKING, AS REQUIRED UNDER S ECTION 80-IB(5) OF THE ACT. AUDITED ACCOUNTS FOR PREFERRING A CLAIM U NDER SECTION 80-IB OF THE ACT WAS FILED FOR THE IMPUGNED ASSESSMENT YEAR ONLY AND EXPENSES INCURRED FOR SATELLITE GAS UNIT, PRIOR TO YEAR OF I TS COMMERCIAL PRODUCTION, WERE NEVER CARRIED FORWARD OR SET OFF BEFORE WORKIN G OUT THE ELIGIBLE DEDUCTION UNDER SECTION 80-IB OF THE ACT. AGAIN, A S PER DIT(INTERNATIONAL TAXATION), APPORTIONMENT OF EXPEN SES ON A PRO RATA BASIS WAS ITSELF AN INDICATOR THAT SEPARATE ACCOUNT S FOR THE UNITS PREFERRING CLAIM UNDER SECTION 80-IB OF THE ACT, WE RE NEVER MAINTAINED AND SEPARATE AUDITS NEVER DONE BY THE ASSESSEE. 7. VIS--VIS LAKSHMI GAS FIELD, OBSERVATION OF DIT( INTERNATIONAL TAXATION) WAS THAT IT WAS NOT A DISTINCT UNDERTAKIN G BUT ONLY A PART OF CBOS 2 BLOCK. 7 I.T.A. NO. 714/MDS/09 8. IN A NUTSHELL, AS PER THE LD. DIT(INTERNATIONAL TAXATION), ASSESSING OFFICER HAD ALLOWED THE CLAIM UNDER SECTION 80-IB(9 ) WITHOUT EXAMINING THE ISSUE IN THE MANNER REQUIRED UNDER LAW. ACCORD ING TO HIM, DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GABRIEL INDIA LIMITED (SUPRA), THAT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SILVER CLOUD ESTATES PVT. LTD. (SUPRA) AND THAT OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF TAJ PRINTERS (SUPRA) HAD NO APPLICAB ILITY ON FACTS HERE. ON THE OTHER HAND, AS PER DIT(INTERNATIONAL TAXATION), DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASHOK LEYL AND LTD. V. CIT (260 ITR 599) SQUARELY APPLIED ON FACTS. THERE WAS FAIL URE ON THE PART OF THE ASSESSING OFFICER TO EXAMINE IN DEPTH THE CLAIM OF THE ASSESSEE. SUCH A FAILURE WAS, ACCORDING TO HIM, ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF REVENUE. HE, THEREFORE, SET ASIDE THE ASSESSMEN T DONE BY THE A.O. AND DIRECTED HIM TO EXAMINE THE ALLOWABILITY OF DED UCTION UNDER SECTION 80-IB, RECOMPUTE SUCH DEDUCTION AND MAKE A FRESH AS SESSMENT. 9. NOW BEFORE US, LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, SUBMITTED THAT IN THE FIRST PLACE, THE RE ASONS GIVEN IN THE ORDER PASSED BY DIT(INTERNATIONAL TAXATION) WERE AT VARIA NCE FROM WHAT WAS STATED IN THE SHOW CAUSE NOTICE. ACCORDING TO HIM, DIT(INTERNATIONAL TAXATION) NEVER MENTIONED IN THE SHOW CAUSE NOTICE ISSUED THAT ASSESSEE WAS NOT ENTITLED FOR DEDUCTION UNDER SECTI ON 80-IB OF THE ACT. 8 I.T.A. NO. 714/MDS/09 HIS ONLY OBJECTION WAS THAT COMPUTATION OF DEDUCTIO N ALLOWED UNDER SECTION 80-IB(9) WAS NOT IN ACCORDANCE WITH SUB-SEC TIONS (13) AND (5) OF SECTIONS 80-IB AND 80-IA RESPECTIVELY. LD. SENIOR C OUNSEL ALSO POINTED OUT THAT ASSESSEE HAS FILED A SET OF ADDITIONAL GRO UNDS WHICH, INTER ALIA, ASSAILED THE ORDER OF DIT(INTERNATIONAL TAXATION) I NSOFAR AS IT VIOLATED THE PRINCIPLES OF NATURAL JUSTICE. ACCORDING TO HIM, N O OPPORTUNITY WAS GIVEN TO THE ASSESSEE BY THE DIT (INTERNATIONAL TAXATION) FOR GIVING ITS EXPLANATIONS WITH REGARD TO THE VIEW TAKEN BY HIM T HAT ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB(9) OF TH E ACT. AS PER THE LD. SENIOR COUNSEL, HAD ASSESSEE BEEN PUT ON NOTICE, ON THIS VIEW PROPOSED BY THE DIT(INTERNATIONAL TAXATION), IT WOULD HAVE G IVEN HIM A PROPER REPLY EXPLAINING HOW IT WAS ELIGIBLE FOR CLAIMING S UCH DEDUCTION. DIT(INTERNATIONAL TAXATION) HAD ONLY TAKEN OBJECTIO N TO THE COMPUTATION OF DEDUCTION UNDER SECTION 80-IB(9), IN THAT IT WAS NOT DONE IN ACCORDANCE WITH PROVISIONS OF SECTION 80-IB(13) REA D WITH SECTION 80- IA(5) OF THE ACT. ACCORDING TO HIM, ONCE THE DIT(I NTERNATIONAL TAXATION) FOUND THAT ASSESSEE HAD DULY REPLIED TO THE NOTICE, ON THESE OBJECTIONS, HE OUGHT NOT HAVE PROCEEDED FURTHER. HE CAME TO A CONTRADICTORY AND FACTUALLY INCORRECT CONCLUSION FOR JUSTIFYING THE P ROCEEDINGS INITIATED UNDER SECTION 263 OF THE ACT. AS PER LD. SENIOR CO UNSEL, THE FINDINGS RECORDED IN THE ORDER UNDER SECTION 263 HAD NO RELE VANCE TO THE REASONS MENTIONED IN SHOW CAUSE NOTICE, AND HENCE T HE ORDER DESERVED 9 I.T.A. NO. 714/MDS/09 TO BE QUASHED. RELIANCE WAS PLACED ON THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF COLOCRAFT V. ITO (105 ITD 599), THAT OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. C ONTIMETERS ELECTRICALS (P) LTD. (317 ITR 249), THAT OF HONBLE ANDHRA PRAD ESH HIGH COURT IN THE CASE OF CIT V. G.K. KABRA (211 ITR 336), THAT OF HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SILVER CLOUD ESTATES PVT. LTD. (SUPRA), AND CIT V. PVP VENTURES LIMITED (TCA N0.1023 OF 2005 DATED 19.6.2012) AND THAT OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF SSI LTD. V. DCIT [(2004) 85 TTJ 1049] AND SANCO TRANS LTD. V. ACIT ( 61 ITD 317). 10. FURTHER CONTINUING HIS ARGUMENT, LD. SENIOR COU NSEL SUBMITTED THAT NOTICE ITSELF WAS VAGUE. IT DID NOT STATE AS TO WH Y AND HOW THE COMPUTATION OF DEDUCTION UNDER SECTION 80-IB(9) WAS NOT IN ACCORDANCE WITH SECTION 80-IB(13) READ ALONG WITH SECTION 80-I A(5) OF THE ACT. ACCORDING TO HIM, ASSESSEE WAS NOT CONFRONTED WITH THE FUNDAMENTAL REASON WHY AN ADVERSE INFERENCE WAS DRAWN AGAINST I T. WITHOUT GIVING ANY REASON AS TO HOW THE COMPUTATION OF THE CLAIM M ADE BY THE ASSESSEE WAS INCORRECT, LD. DIT (INTERNATIONAL TAXA TION) HAD REACHED AN ADVERSE CONCLUSION. 11. AGAIN, AS PER THE LEARNED A.R., DIT(INTERNATION AL TAXATION)S ORDER WAS EQUALLY AND IF NOT MORE VAGUE AND CONTRADICTORY . IT HAD AT TWO PLACES MENTIONED THAT ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER 10 I.T.A. NO. 714/MDS/09 SECTION 80-IB(9) OF THE ACT, WHEREAS, IN THE LAST P ARA, HE DIRECTED THE A.O. TO EXAMINE THE ALLOWABILITY OF DEDUCTION AND R ECOMPUTE SUCH DEDUCTION. FURTHER, ACCORDING TO HIM, ALLEGATION T HAT THE ASSESSING OFFICER HAD NOT CONDUCTED ENQUIRIES, WAS NOT BASED ON ANY MATERIAL BUT PURELY AN ASSUMPTION TAKEN BY THE DIT(INTERNATIONAL TAXATION). THERE WAS NO MENTION BY THE DIT(INTERNATIONAL TAXATION) I N THE NOTICE ISSUED TO THE ASSESSEE UNDER SECTION 263 OF THE ACT THAT THER E WAS ANY FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE A PROPER ENQUIRY. ACCORDING TO HIM, ASSESSEE HAD SUBMITTED ALL THE DETAILS IN SUPP ORT OF ITS CLAIM AND FILED THE AUDIT REPORTS REQUIRED WITH REGARD TO SUC H CLAIM, ASSESSING OFFICER HAD FURTHER SOUGHT FOR CERTAIN DETAILS, WHI CH WERE ALSO DULY FURNISHED. SPECIAL REFERENCE WAS MADE TO PAPER-BOO K PAGES 14 TO 18 WHICH, ACCORDING TO LD. SENIOR COUNSEL, GAVE FULL D ETAILS OF THE CLAIM FOR DEDUCTION UNDER SECTION 80-IB(9) OF THE ACT BEFORE THE ASSESSING OFFICER. LD. COUNSEL ALSO HIGHLIGHTED THE PORTION THEREIN WHERE MONTH OF START OF COMMERCIAL PRODUCTION IN RESPECT OF THE TW O UNITS WAS GIVEN. ACCORDING TO HIM, ASSESSEE HAD IN ITS ANNEXURE TO T HE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN GIVEN DETAILED COMPUTATION OF ITS CLAIM FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. RELI ANCE WAS PLACED ON PAPER-BOOK PAGES 26 TO 30 AND 38 TO 42 IN THIS REGA RD. A.O. HAD CONSIDERED SUCH COMPUTATION AND THEREAFTER REACHED A LAWFUL CONCLUSION THAT ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECT ION 80-IB(9) OF THE 11 I.T.A. NO. 714/MDS/09 ACT. ASSESSMENT PROCEEDINGS WERE ON FOR MORE THAN ONE AND HALF YEARS AND IT WAS NOT PROPER TO COME TO A CONCLUSION THAT THE ASSESSING OFFICER HAD NOT MADE PROPER ENQUIRIES. THUS, ACCORDING TO HIM, THE LD. DIT (INTERNATIONAL TAXATION) WAS TRYING TO SUBSTITUTE H IS VIEWS WITH THE LAWFUL VIEW TAKEN BY THE ASSESSING OFFICER. 12. ON MERITS, LD. SENIOR COUNSEL SUBMITTED THAT DA TE OF COMMERCIAL PRODUCTION WAS DULY SHOWN BY THE ASSESSEE IN THE AU DIT REPORT IN FORM NO.10CCB PLACED AT PAPER-BOOK PAGES 20 TO 42. THE DATE OF COMMERCIAL PRODUCTION FOR SATELLITE GAS UNIT WAS 19 .9.2001 AND LAKSHMI GAS FIELD WAS 1.11.2002 AS PER THESE REPORT S. AS FOR THE OBSERVATION OF DIT(INTERNATIONAL TAXATION) THAT SAT ELLITE GAS UNIT WAS ONLY A PART OF RAVVA BLOCK AND NOT A SEPARATE UNDER TAKING, LD. SENIOR COUNSEL SUBMITTED THAT EACH GAS UNIT WAS A SEPARATE UNDERTAKING THOUGH IT WAS ESSENTIALLY PART OF A BLOCK. ACCORDI NG TO HIM, HONBLE APEX COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. V. CIT (107 ITR 195) HAD CLEARLY HELD THAT TRUE TEST WAS NOT WHETHE R THE NEW INDUSTRIAL UNDERTAKING CONNOTED EXPANSION OF THE EXISTING BUSI NESS OF THE ASSESSEE BUT WHETHER IT WAS ALL THE SAME A NEW AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM EXISTING BUS INESS. AS PER THE LD. SENIOR COUNSEL, SATELLITE GAS UNIT AND LAKSHMI GAS FIELD WERE SEPARATE UNDERTAKINGS AND SEPARATE INDEPENDENT UNITS, THOUGH IT FORMED PART OF 12 I.T.A. NO. 714/MDS/09 BLOCKS CALLED RAVVA BLOCK AND CBOS2 BLOCK RESPECTIV ELY. AS FOR THE OBSERVATION OF THE LD. DIT(INTERNATIONAL TAXATION) THAT FOR CLAIMING DEDUCTION UNDER SECTION 80-IB OF THE ACT, SEPARATE ACCOUNTS HAD TO BE MAINTAINED FROM INCEPTION, LD. SENIOR COUNSEL SUBMI TTED THAT THERE WAS NO SUCH REQUIREMENT UNDER THE ACT OR RULES. RELIAN CE WAS PLACED ON THE DECISION OF HONBLE ANDHRA PRADESH IN THE CASE OF CIT V. SREE KRISHNA PULVERSING MILLS (241 ITR 262), THAT OF HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. HIGH LAMPS LTD. (190 IT R 553), THAT HONBLE MADHYA PRADESH IN THE CASE OF CIT V. PRAKASH CHANDR A BASANT KUMAR (276 ITR 664), THAT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF INTERNATIONAL INSTRUMENTS (P) LTD. V. CIT (123 ITR 11) AND THAT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA SINTERED PRODUCTS LTD. V. CIT (177 ITR 111). 13. AS TO THE CONCLUSION OF THE DIT(INTERNATIONAL T AXATION) THAT EARLIER LOSSES OF RAVVA BLOCK WAS NOT CARRIED FORWARD AND S ET OFF AGAINST THE PROFITS BEFORE CLAIMING DEDUCTION UNDER SECTION 80- IB(9), LD. SENIOR COUNSEL SUBMITTED THAT THIS WAS AGAINST THE LAW LAI D DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHAS WAMY SPINNING MILLS (P) LTD. V. CIT (340 ITR 477). ALL IN ALL, IN THE OPINION OF THE LD. SENIOR COUNSEL, ORDER OF DIT(INTERNATIONAL TAXATION) WAS I LL CONCEIVED, THE ORDER AS WELL AS THE SHOW CAUSE NOTICE WERE VAGUE AND WER E AT VARIANCE WITH 13 I.T.A. NO. 714/MDS/09 EACH OTHER, THE ORDER UNDER SECTION 263 WAS CONTRAD ICTORY IN ITSELF, ASSESSEE WAS NOT GIVEN AN OPPORTUNITY FOR REBUTTING THE VIEWS PROPOSED TO BE TAKEN, THE ORDER WENT BY A WRONG PRESUMPTION THAT ASSESSING OFFICER HAD NOT ENQUIRED THE CLAIM FOR DEDUCTION AN D IGNORING THE FACT THAT ASSESSEE HAD DECLARED THE DATE OF COMMERCIAL P RODUCTION FOR BOTH UNITS AND CORRECTLY CONSIDERED SATELLITE GAS FIELD AND LAKSHMI GAS FIELD AS SEPARATE INDUSTRIAL UNDERTAKINGS. THE ORDER WAS BAD ALSO DUE TO THE REASON THAT SEPARATE ACCOUNTS WHICH WAS NOT A REQUI REMENT FOR PREFERRING A CLAIM FOR DEDUCTION UNDER SECTION 80-I B WAS CONSIDERED BY THE DIT (INTERNATIONAL TAXATION) AS ESSENTIAL. 14. PER CONTRA, LEARNED D.R., STRONGLY SUPPORTING T HE ORDER OF DIT (INTERNATIONAL TAXATION), SUBMITTED THAT THERE WAS NO VARIANCE BETWEEN THE SUBSTANCE OF THE SHOW CAUSE NOTICE ISSUED UNDER SECTION 263 AND FINAL ORDER PASSED UNDER SECTION 263 OF THE ACT. THE VARIANCE POINTED OUT BY THE LD. SENIOR COUNSEL WERE ALL PERFUNCTORY AND IF AT ALL THERE, CURABLE UNDER SECTION 292B OF THE ACT. THE SCOPE A ND SUBSTANCE OF BOTH, NOTICE UNDER SECTION 263 AND ORDER UNDER SECT ION 263 WERE VERY SAME. LD. DIT (INTERNATIONAL TAXATION) HAD IN FAC T PROPOSED THE VERY SAME LINE OF ACTION WHICH HE HAD FINALLY UPHELD IN THE ORDER UNDER SECTION 263. IT MIGHT BE TRUE THAT ASSESSEE HAD F URNISHED SOME WORKING REGARDING THE CLAIM OF DEDUCTION MADE UNDER SECTION 80- 14 I.T.A. NO. 714/MDS/09 IB(9), BUT THE BASIS OF SUCH WORKING AND FUNDAMENTA L ASSUMPTIONS TAKEN BY THE ASSESSEE WAS NEVER SUBJECTED TO AN ENQUIRY O R VERIFICATION BY THE ASSESSING OFFICER. ASSESSEE HAD SIMPLY ALLOCATED T HE TOTAL COST TO THE UNITS ON WHICH THE CLAIM WAS PREFERRED AT ARBITRARY RATIO ON 1/5. ON THE ALLOCATION OF COST, A.O. HAD NEVER MADE ANY ENQUIRI ES WHICH HE OUGHT HAVE DONE AT THE STAGE OF ASSESSMENT. THE A.O. NEV ER MADE ENQUIRY WHETHER UNITS ON WHICH CLAIMS WERE PREFERRED WERE S EPARATE OR SUCH UNDERTAKINGS WERE ONLY PART OF THE ALREADY EXISTING BLOCKS ALREADY HAVING PRODUCTION OF OIL. THE A.O. NEVER MADE ENQUIRIES A S TO HOW ASSESSEE HAD WORKED OUT SUCH DEDUCTION IN THE EARLIER YEARS. ACCORDING TO LEARNED D.R., CLAIM OF THE ASSESSEE THAT SIMILAR DE DUCTIONS WERE GIVEN TO IT IN EARLIER YEARS WAS ALSO INCORRECT SINCE ASS ESSEE WAS NOT HAVING ANY POSITIVE GROSS TOTAL INCOME FOR EARLIER YEARS. THUS, ACCORDING TO HIM, DIT (INTERNATIONAL TAXATION) WAS JUSTIFIED IN INVOK ING REVISONARY POWER VESTED ON HIM UNDER SECTION 263 OF THE ACT. 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE ARE IN FULL AGREEMENT WITH THE ARGUMENT OF THE LEAR NED A.R. THAT IN A PROCEEDING UNDER SECTION 263 OF THE ACT, CIT CANNOT TRAVEL BEYOND THE SHOW CAUSE NOTICE AND IF HE TRAVELS BEYOND THE SHOW CAUSE NOTICE, PRINCIPLES OF NATURAL JUSTICE DEMANDED AN OPPORTUNI TY TO BE GIVEN TO THE ASSESSEE BEFORE AN ORDER IS FINALLY FRAMED. ADDITI ONAL GROUND TAKEN BY 15 I.T.A. NO. 714/MDS/09 THE ASSESSEE IN THIS REGARD IS DEFINITELY ADMISSIBL E, BEING A QUESTION OF LAW AND ALL FACTS NECESSARY TO DECIDE THAT SAME IS ON RECORD. HENCE WHAT IS TO BE SEEN HERE IS WHETHER THE DIT(INTERNAT IONAL TAXATION) HAD TRAVELLED BEYOND THE NOTICE UNDER SECTION 263 OF TH E ACT WHILE FRAMING THE ORDER UNDER SECTION 263 OF THE ACT. WE HAVE RE PRODUCED THE PERTINENT PART OF THE NOTICE AT PARA FOUR OF OUR OR DER ABOVE. WHAT WAS STATED IN THE SAID NOTICE IS THAT THE CLAIM FOR DED UCTION UNDER SECTION 80- IB(9) WAS NOT COMPUTED IN ACCORDANCE WITH PROVISION S OF SECTION 80- IB(13) READ WITH SECTION 80-IA(5) OF THE ACT. IN H IS FINAL ORDER PASSED ON 12.3.2009 UNDER SECTION 263 OF THE ACT, DIT(INTERNA TIONAL TAXATION) HELD THAT ASSESSEE WAS NOT ELIGIBLE FOR CLAIMING DEDUCTI ON UNDER SECTION 80- IB OF THE ACT. FINDING OF DIT(INTERNATIONAL TAXATI ON) IS REPRODUCED HEREUNDER FOR BREVITY:- RAVVA SATELLITE GAS UNIT ON PERUSAL OF THE RECORDS IT IS SEEN THAT THE ASSE SSEE HAS NOT DECLARED WHETHER ASSESSMENT YEAR 2003-04 WAS THE FIRST Y EAR OF COMMERCIAL PRODUCTION OR NOT. THIS DECLARATION IS NECESSARY AS CLAIM U/S 80IB IS AVAILABLE ONLY FROM THE YEAR IN WHICH COMM ERCIAL PRODUCTION HAS COMMENCED. AS PER THE PROVISIONS OF SECTION 80IB(13) R.W.S. 80IA(7) THE UNDERTAKING CLAIMING DEDUCTION HAS TO GET ITS ACCOUNTS AUDITED AND FILE THE AUDIT REPORT IN THE PRESCRIBED FORM. IT IS IMPERATIVE THAT THE UNDERTAKING CLAIMI NG DEDUCTION NEEDS TO MAINTAIN SEPARATE ACCOUNTS RIGHT FROM THE DATE O F INCEPTION IN RESPECT OF THE UNIT CLAIMING DEDUCTION UNDER THIS S ECTION. BUT THE ASSESSEE COMPANY HAS SHOWN THE EXPENSES RELATING TO THE SATELLITE GAS FIELD IN THE ACCOUNTS OF THE RAVVA BLOCK AND FI LED CONSOLIDATED PROFIT AND LOSS ACCOUNTS AND BALANCE SHEET FOR THE BLOCKS AS A WHOLE. 16 I.T.A. NO. 714/MDS/09 THE SATELLITE GAS UNIT IS ONLY A PART OF RAVVA BLOC K WHICH HAS BEEN OPERATING SINCE 1994 ONWARDS AND IS NOT A SEPARATE UND ERTAKING AS IT IS REQUIRED U/S 80IB(5). FURTHER IT IS SEEN THAT THE A SSESSEE COMPANY STARTED PREPARING AUDITED ACCOUNTS ONLY FRO M THE YEAR IN WHICH IT HAS STARTED CLAIMING DEDUCTION U/S 80IB AND N OT FROM THE DATE OF INCEPTION. AS A RESULT, ALL THE EXPENSES I NCURRED WITH RESPECT TO SATELLITE GAS UNIT PRIOR TO THE YEAR IN WHICH TH E COMMERCIAL PRODUCTION HAS COMMENCED HAS NOT BEEN CARRIED FORWA RD AND SET OFF FROM THE PROFITS AGAINST WHICH THE DEDUCTION U/S 80IB (9) HAS BEEN MADE. ON THE CONTRARY, THE EXPENSES OF THE GAS UNIT HAVING MERGED WITH THE OTHER BLOCKS HAVE BEEN CARRIED FORWARD AS THE LOSSES OF THE COMPANY AS A WHOLE AND BEING SET OFF IN THE SUBSEQU ENT YEARS. HENCE, THE ASSESSEES CLAIM OF DEDUCTION U/S 80IB WITH RESPECT OF RAVVA SATELLITE GAS UNIT IS NOT ADMISSIBLE. THAT T HE ASSESSEE HAS APPORTIONED AUDIT EXPENSES INTO EXPENSES ATTRIBUTABLE TO THE SATELLITE UNIT AND THE OTHER BLOCKS ON PRO-RATA BAS IS IS ANOTHER INDICATOR TO THE FACT THAT NO SEPARATE AUDIT WAS UN DERTAKEN FOR THE 80IB UNIT. THE ASSESSING OFFICER IN THE IMPUGNED ORDE R HOWEVER HAS ALLOWED THE DEDUCTION U/S 80IB(9) WITHOUT EXAMINING THE ISSUE IN THE MANNER NARRATED ABOVE. TO THAT EXTENT THE ACTION OF THE ASSESSING OFFICER IS ERRONEOUS IN AS MUCH AS IT IS PREJUDICIA L TO THE INTERESTS OF THE REVENUE. LAXMI GAS FIELD THIS BLOCK COMPRISES OF VARIOUS UNITS AMBA, GOWR I, PARVATHY, LAKSHMI AND OTHERS. THE ASSESSEE COMPANY HAS CLAIM ED THAT THE LAXMI GAS FIELD HAS COMMENCED ITS COMMERCIAL PRODUCT ION ONLY FROM ASSESSMENT YEAR 203-04 ONWARDS. DEDUCTION U/S 80IB(9) OF ` 4,46,72,736 AND ` 48,39,66,673 RELATING TO PROFITS FROM LAXMI GAS FIELD WAS CLAIMED AND ALLOWED DURING ASSESSMENT YEA R 2003-04 AND 2004-05 RESPECTIVELY. IT HAS BEEN STATED IN THE FINANCI AL STATEMENT FOR THE A.Y. 2001-02 VIDE PARA 3 OF THE NOTE TO THE FINA NCIAL STATEMENTS THAT ON 20 TH JANUARY 2001 THE DISCOVERY OF GAS WITHIN THE CBOS 2 CONTRACT AREA CALLED LAXMI GAS FIELD WAS DECLARED COMMERCIAL BY JOINT VENTURE. THE DEVELOPMENT AREA O F LAXMI IS BEING DEVELOPED INTO A PRODUCING FIELD. FROM THIS STATEM ENT IT IS CLEAR THAT LAXMI GAS FIELD AS SUCH IS NOT A SEPARATE UNDERTAKIN G DISTINCT FROM CBOS 2 BLOCK BUT IT ONLY FORMS PART OF THE CBOS 2 CONTR ACT AREA BLOCK. HENCE LAXMI GAS FIELD IS ALSO NOT ELIGIBLE FO R DEDUCTION U/S 80IB(9) OF THE ACT. THE ASSESSING OFFICER IN THE IMPUG NED ORDER, 17 I.T.A. NO. 714/MDS/09 HOWEVER, HAS ALLOWED THE DEDUCTION U/S 80IB(9) WITHOUT EXAMINING THE ISSUE IN THE MANNER NARRATED ABOVE. TO THAT EXT ENT THE ACTION OF THE ASSESSING OFFICER IS ERRONEOUS IN AS MUCH AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE JUDICIAL DECISIONS RELIED ON BY THE LEARNED AU THORIZED REPRESENTATIVE HAVE BEEN CAREFULLY PERUSED AND EXAMI NED. IN THE CASE OF GABRIEL INDIA LTD. THE ISSUE WAS WHETHER AN ORDER WHICH HAS NOT BEEN ELABORATED IS ERRONEOUS AND PREJUDICIAL. ON THE FACTS OF THAT CASE THE HONBLE BOMBAY HIGH COURT (SUPRA) HELD THAT SECTION 263 DOES NOT VISUALIZE SUBSTITUTION OF THE JUDGMENT OF CIT WITH THAT OF THE A.O. IN THE PRESENT CASE, HOWEVER, THE FACT S ARE DIFFERENT IN THE SENSE THAT THERE IS NO SUBSTITUTION OF JUDGMENT INVOLVED. THEREFORE THE RATIO OF THAT JUDGMENT IS NOT APPLICA BLE ON THE FACTS OF THE PRESENT CASE. IN THE CASE SILVER CLOUD ESTA TES (SUPRA) THE HONBLE COURT WAS DEALING WITH THE REVISIONARY POWE RS OF THE CIT AND HELD THAT AN OPPORTUNITY OF BEING HEARD SHOULD BE G IVEN TO THE ASSESSEE BEFORE REVISING THE ASSESSMENT. THE FACTS OF THAT CASE ARE DIFFERENT FROM PRESENT ONE AND ARE DISTINGUISHED. THEREFORE THE RATIO OF THAT JUDGMENT IS NOT APPLICABLE TO THE FAC TS OF THE CASE. IN THE CASE OF TAJ PRINTERS (SUPRA) THE HONBLE HIGH C OURT HELD THAT THE CIT BEFORE ASSUMING JURISDICTION U/S 263 HAS TO SPECI FICALLY STATE THE POINTS FOR ENQUIRY AND RECORD THE REASONS HOW T HE ORDER OF A.O. WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE PRESENT CASE THE ISSUES ON WHICH IT WAS FOUND THAT THE A.O. HAS ERRED BY VIRTUE OF WHICH PREJUDICE HAS BEEN CAUSED TO THE REVENUE HAVE BEEN CLEARLY STATED IN THE HOW CAUSE NOTICE DA TED 21.01.09. THEREFORE THE FACTS ARE DISTINGUISHED. 7. IN SUPPORT OF MY FINDINGS AS ABOVE THAT THE IMPU GNED ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE, RELIANCE IS PLACED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF M/S ASHOK LEYLAND LTD. V. COMMISSIONER OF INCOME-TA X (260 ITR 599) WHEREIN THE JURISDICTIONAL HIGH COURT HELD THAT F AILURE ON THE PART OF THE ASSESSING OFFICER TO EXAMINE IN DEPTH TH E CLAIM OF THE ASSESSEE AND HIS FAILURE TO DO SO IS NOT ONLY ERRON EOUS BUT ALSO PREJUDICIAL TO THE REVENUE. 8. FROM THE ABOVE, IT IS HELD THAT THE ASSESSMENT O RDER U/S 143(3) DATED 28.12.2006 IN WHICH THE DEDUCTION U/S 80IB WAS ALLOWED BY THE ASSESSING OFFICER IS ERRONEOUS AND P REJUDICIAL TO 18 I.T.A. NO. 714/MDS/09 INTERESTS OF THE REVENUE AND IS, THEREFORE, SET ASI DE. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ALLOWABILITY OF D EDUCTION AND RECOMPUTE THE DEDUCTION U/S 80IB OF THE ACT AS PER THE PROVISIONS OF I.T. ACT AND RECOMPUTE THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2004-05 AND MAKE A FRESH ASSESSMENT ORDER AFTER GIVING T HE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 16. THERE IS NO DISPUTE THAT ASSESSEE HAD CLAIMED D EDUCTION UNDER SECTION 80-IB(9), SUPPORTED BY AUDIT REPORT REQUIRE D UNDER SECTION 80- IA(7) IN FORM NO.10CCB, BOTH WITH RESPECT TO SATELL ITE GAS FIELD AND ALSO WITH RESPECT TO LAKSHMI GAS FIELD. IN FACT, T HERE WERE TWO SEPARATE AUDIT REPORTS FOR THESE. IT IS ALSO TRUE THAT ALON G WITH SUCH AUDIT REPORTS, ASSESSEE HAD ALSO FILED A COMPUTATION AS TO HOW IT ARRIVED AT THE CLAIM FOR DEDUCTION UNDER SECTION 80IB(9) OF THE ACT. IN SUCH ANNEXURES, ASSESSEE HAD GIVEN A SHORT NARRATION OF THE BASIS F OR ALLOCATION OF ITS EXPENSES TO THE UNITS ENJOYING THE TAX HOLIDAY, OUT OF ITS TOTAL COST. A SHORT REASONING FOR ALLOCATION WAS GIVEN BY THE ASS ESSEE AT COL. 5 OF ITS ANNEXURE TO THE AUDIT REPORT, WHEREIN EACH HEAD OF OPERATING EXPENSES WERE MENTIONED. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, ASSESSING OFFICER HAD OBVIOUSLY SOUGHT FROM THE ASS ESSEE THE BASIS FOR CLAIM OF DEDUCTION UNDER SECTION 80-IB(9) OF THE AC T. ASSESSEES LETTER DATED 03.11.2006 ADDRESSED TO THE ASSESSING OFFICER CLEARLY MENTIONS THAT SUCH LETTER WAS BEING FILED AS CALLED FOR BY T HE ASSESSING OFFICER. IN SUCH LETTER, ASSESSEE HAD MENTIONED THE MONTH OF CO MMENCEMENT OF COMMERCIAL PRODUCTION OF BOTH THESE UNITS. 19 I.T.A. NO. 714/MDS/09 17. AT THIS JUNCTURE, IT IS REQUIRED TO HAVE A LOOK AT SECTION 80-IB(13), MENTIONED BY THE DIT (INTERNATIONAL TAXATION) IN TH E SHOW CAUSE NOTICE, AND THIS IS REPRODUCED HEREUNDER:- 80-IB(13) THE PROVISIONS CONTAINED IN SUB-SECTION (5) A ND SUB- SECTIONS (7) TO (12) OF SECTION 80-IA SHALL, SO FAR A S MAY BE, APPLY TO THE ELIGIBLE BUSINESS UNDER THIS SECTION. THUS FOR PREFERRING A DEDUCTION UNDER SECTION 80-IB OF THE ACT, THE ELIGIBLE BUSINESS SHALL COMPLY WITH SUB-SECTION (5) AND SUB-SECTIONS (7) TO (12) OF SECTION 80-IA OF THE ACT SO FAR AS IT CO ULD APPLY. THIS IN TURN NECESSITATES A LOOK AT SUB-SECTION (5) AND SUB-SECT IONS (7) TO (12) OF SECTION 80-IA AND THESE ARE REPRODUCED HEREUNDER:- (5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIO NS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE QUANTUM OF DEDUCTION UN DER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUCCEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE O NLY SOURCE OF INCOME OF THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INITIAL AS SESSMENT YEAR AND TO EVERY SUBSEQUENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMINATION IS TO BE MADE. (7) [THE DEDUCTION] UNDER SUB-SECTION (1) FROM PRO FITS AND GAINS DERIVED FROM AN [UNDERTAKING] SHALL NOT BE ADMISSIBLE UNLESS THE AC COUNTS OF THE [UNDERTAKING] FOR THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR FOR W HICH THE DEDUCTION IS CLAIMED HAVE BEEN AUDITED BY AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 , AND THE ASSESSEE FURNISHES, ALONG WITH HIS RETURN O F INCOME, THE REPORT OF SUCH AUDIT IN THE PRESCRIBED FORM DULY SIGNED AND VERIFIED BY SUCH AC COUNTANT. (8) WHERE ANY GOODS [OR SERVICES] HELD FOR THE PURPOSES OF THE ELIGIBLE BUSINESS ARE TRANSFERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE, OR WHERE ANY GOODS [OR SERVICES] HELD FOR THE PURPOSES OF ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE ARE TRANSFERRED TO THE ELIGIBLE BUSINESS AND, IN EITHER CASE, THE CONSIDER ATION, IF ANY, FOR SUCH TRANSFER AS RECORDED IN THE ACCOUNTS OF THE ELIGIBLE BUSINESS DOES NOT CORR ESPOND TO THE MARKET VALUE OF SUCH GOODS [OR SERVICES] AS ON THE DATE OF THE TRANSFER, THEN, FOR THE PURPOSES OF THE DEDUCTION UNDER THIS 20 I.T.A. NO. 714/MDS/09 SECTION, THE PROFITS AND GAINS OF SUCH ELIGIBLE BUS INESS SHALL BE COMPUTED AS IF THE TRANSFER, IN EITHER CASE, HAD BEEN MADE AT THE MARKET VALUE OF S UCH GOODS [OR SERVICES] AS ON THAT DATE : PROVIDED THAT WHERE, IN THE OPINION OF THE ASSESSING OFFICER , THE COMPUTATION OF THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS IN THE MANNER HE REINBEFORE SPECIFIED PRESENTS EXCEPTIONAL DIFFICULTIES, THE ASSESSING OFFICER MAY COMPUTE SUC H PROFITS AND GAINS ON SUCH REASONABLE BASIS AS HE MAY DEEM FIT. [ EXPLANATION. FOR THE PURPOSES OF THIS SUB-SECTION, MARKET VALUE , IN RELATION TO ANY GOODS OR SERVICES, MEANS THE PRICE THAT SUCH GOODS OR SER VICES WOULD ORDINARILY FETCH IN THE OPEN MARKET.] (9) WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN [UN DERTAKING] OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAIMED AND ALLOWED UNDER THIS SE CTION FOR ANY ASSESSMENT YEAR, DEDUCTION TO THE EXTENT OF SUCH PROFITS AND GAINS SHALL NOT BE A LLOWED UNDER ANY OTHER PROVISIONS OF THIS CHAPTER UNDER THE HEADING C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES , AND SHALL IN NO CASE EXCEED THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS OF [UNDERTAKING] OR ENTERPRISE, AS THE CASE MAY BE. (10) WHERE IT APPEARS TO THE ASSESSING OFFICER THAT , OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS TO W HICH THIS SECTION APPLIES AND ANY OTHER PERSON, OR FOR ANY OTHER REASON, THE COURSE OF BUSI NESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE AS SESSEE MORE THAN THE ORDINARY PROFITS WHICH MIGHT BE EXPECTED TO ARISE IN SUCH ELIGIBLE B USINESS, THE ASSESSING OFFICER SHALL, IN COMPUTING THE PROFITS AND GAINS OF SUCH ELIGIBLE BU SINESS FOR THE PURPOSES OF THE DEDUCTION UNDER THIS SECTION, TAKE THE AMOUNT OF PROFITS AS M AY BE REASONABLY DEEMED TO HAVE BEEN DERIVED THEREFROM. (11) THE CENTRAL GOVERNMENT MAY, AFTER MAKING SUCH INQUIRY AS IT MAY THINK FIT, DIRECT, BY NOTIFICATION IN THE OFFICIAL GAZETTE, THAT THE EXEM PTION CONFERRED BY THIS SECTION SHALL NOT APPLY TO ANY CLASS OF INDUSTRIAL UNDERTAKING OR ENT ERPRISE WITH EFFECT FROM SUCH DATE AS IT MAY SPECIFY IN THE NOTIFICATION. (12) WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHI CH IS ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED, BEFORE THE EXPIRY OF T HE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION OR DEMER GER ( A ) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SECTI ON TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE; AND ( B ) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS M AY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED COMPANY IF THE AMALGAMATION OR DEMERGER HA D NOT TAKEN PLACE. 18. AS PER THE ASSESSEE, ITS COMPUTATION WAS IN ACC ORDANCE WITH ABOVE PROVISIONS. CLAIM OF THE ASSESSEE IS THAT TH ERE WAS NO LOSS FROM EARLIER YEARS TO BE SET OFF AND EVEN OTHERWISE, THE RE WAS NO REQUIREMENT OF SUCH SET OFF, WHICH IS A VIEW AFFIRMED BY HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS P. LTD. V. ACIT 21 I.T.A. NO. 714/MDS/09 (340 ITR 477). FURTHER, ACCORDING TO ASSESSEE, IT HAD PROVIDED AUDIT REPORT AS REQUIRED UNDER SUB-SECTION (7) AND OTHER SUB-SECTIONS (8) TO (12) HAD NO APPLICABILITY. LD. DIT(INTERNATIONAL T AXATION) HAS HELD THAT SATELLITE GAS FIELD WAS ONLY A PART OF RAVVA BLOCK, WHICH WAS OPERATING SINCE 1994 AND ASSESSING OFFICER HAD NOT EXAMINED W HETHER IT WAS A SEPARATE UNDERTAKING AS REQUIRED UNDER SECTION 80-I B(5) OF THE ACT. NO DOUBT, IN THE SHOW CAUSE NOTICE TO THE ASSESSEE, SE CTION 80-IB(5) DOES NOT FIND A MENTION. HOWEVER, IT CANNOT BE DENIED T HAT IF THE DEDUCTION WAS WORKED OUT NOT IN ACCORDANCE WITH SECTION 80-IB (13) AND SUB- SECTIONS (7) TO (12) OF SECTION 80-IA, THEN A CLAIM FOR DEDUCTION UNDER SECTION 80-IB(9) CANNOT BE ALLOWED. WHEN VIEWED FR OM THIS ANGLE, NON- MENTIONING OF SECTION 80-IB(5) IN THE SHOW CAUSE NO TICE CANNOT BE CONSIDERED AS SO CARDINAL AN ERROR THAT WOULD RENDE R THE WHOLE PROCEEDINGS VOID OR INVALID. SECTION 292B CAN CURE EVEN IF THERE WAS A SLIGHT LACUNAE OF THE NATURE MENTIONED, SINCE THE P ROCEEDINGS CULMINATING IN THE ORDER UNDER SECTION 263 WAS IN S UBSTANCE AND EFFECT IN CONFORMITY WITH OR ACCORDING TO THE INTENT AND P URPOSE OF THE ACT. 19. CONCLUSION OF THE DIT(INTERNATIONAL TAXATION) T HAT ASSESSING OFFICER HAD NOT EXAMINED WHETHER SATELLITE GAS UNIT UNDER RAVVA BLOCK WAS A SEPARATE UNDERTAKING AND WHETHER COMMERCIAL P RODUCTION HAD COMMENCED ON THE DATES MENTIONED BY THE ASSESSEE, A LSO APPEARS TO 22 I.T.A. NO. 714/MDS/09 BE CORRECT. ASSESSEE ITSELF IN ITS SYNOPSIS SUBMIT TED BEFORE THIS BENCH, HAS MENTIONED THAT FOR FINANCIAL YEAR 2001-02 RELEV ANT TO ASSESSMENT YEAR 2002-03, NO DEDUCTION WAS CLAIMED UNDER SECTIO N 80-IB. RELEVANT PARAGRAPHS 7.5 AND 7.10 APPEARING IN SAID SYNOPSIS, ARE REPRODUCED HEREUNDER:- 7.5 IT IS SUBMITTED THAT, IN THE FINANCIAL YEAR 2001-02 R ELEVANT TO ASSESSMENT YEAR 2002-03, THERE WAS A LOSS OF ` 7,23,45,637/- IN THE UNDERTAKING NAMELY SATELLITE GAS FIELD AND, AS SUCH NO DEDUCTION U/S 80IB(9) OF THE ACT WAS CLAIMED. THIS I S EVIDENT FROM AUDITORS REPORT IN FORM NO.10CCB U/S 80IB(9) READ WITH S ECTION 80IA(7) AND, RULE 18BBB OF INCOME-TAX RULES, 1962 OF THE FINA NCIAL YEAR 2002-03 RELEVANT TO ASSESSMENT YEAR 2003-04 AT PAGE 64 OF THE PAPER-BOOK II. FURTHER, IN FINANCIAL YEAR 2002-03 RELEVANT TO ASSESSMENT YEAR 2003-04, THERE WAS A PROFIT OF ` 13,70,77,470/- (SEE PAGE 64 OF PAPER-BOOK-II) IN SATELLITE GAS FIELD AND AFTER ADJUSTING THE LOSS OF ` 7,23,45,637/- OF ASSESSMENT YEAR 2002-03, THERE WAS A NET PROFIT OF ` 6,47,37,833/-. A COPY OF THE AUDITORS REPORT ALONGWITH PROFIT AND LOSS ACCOUNT FOR ASSESS MENT YEAR 2003- 04 IS PLACED AT PAGES 54 TO 64 OF PAPER-BOOK. HOWEVER, D ESPITE THE AFORESAID PROFIT IN ASSESSMENT YEAR 2003-04, NO DEDUCTI ON WAS CLAIMED, AS DEDUCTION HAD TO BE RESTRICTED TO GROSS TOTAL INCOME (SEE PAGE 60 READ WITH PAGE 64 OF PAPER-BOOK). A COPY OF THE COMPUTATION OF INCOME FOR THE FINANCIAL YEAR 2002-03 RE LEVANT TO ASSESSMENT YEAR 2003-04 IS PLACED AT PAGES 42 TO 44 TO OF TH IS SYNOPSIS. 7.10 IT IS SUBMITTED THAT, IN THE FINANCIAL YEAR 2002- 03 RELEVANT TO ASSESSMENT YEAR 2003-04, THERE WAS A PROFIT OF ` 4,46,72,736/- (SEE PAGE 75 OF PAPER-BOOK-II) IN THE UNDERTAKING NAM ELY LAKSHMI GAS FIELD AND, AS SUCH NO DEDUCTION U/S 80IB(9) OF THE ACT WAS CLAIMED ON ACCOUNT OF THE REASON THAT THE GROSS TOT AL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2003-04 IS NIL AFT ER SETTING OFF PAST LOSSES. THIS IS EVIDENT FROM AUDITORS RE PORT IN FORM NO.10CCB U/S 80IB(9) READ WITH SECTION 80IA(7) AND, RULE 18BBB OF THE INCOME-TAX RULES, 1962 (PAGES 65 TO 75 OF THE PAPER- BOOK- II). HOWEVER, DESPITE THE AFORESAID PROFIT IN ASSE SSMENT YEAR 23 I.T.A. NO. 714/MDS/09 2003-04 NO DEDUCTION WAS CLAIMED, AS DEDUCTION HAD TO BE RESTRICTED TO GROSS TOTAL INCOME (SEE PAGE 75 OF PAPE R-BOOK). A COPY OF THE COMPUTATION OF INCOME FOR THE FINANCIAL YEAR 2002-03 RELEVANT TO ASSESSMENT YEAR 2003-04 IS PLACED AT PAGES 42 TO 44 OF THIS SYNOPSIS. THUS, FOR EARLIER YEARS, ASSESSING OFFICER HAD NO O CCASION TO EXAMINE THE CLAIM OF DEDUCTION UNDER SECTION 80-IB OF THE A CT. MAY BE IT IS TRUE THAT ASSESSEE HAD WORKED OUT SUCH DEDUCTION AND FIL ED A COMPUTATION OF SUCH DEDUCTION ALONG WITH RETURN OF INCOME FOR SUCH EARLIER, THOUGH IT DID NOT PREFER SUCH CLAIM, ON ACCOUNT OF ITS GROSS TOTA L INCOME BEING NEGATIVE. SINCE THERE WAS NO EFFECTIVE CLAIM BY TH E ASSESSEE, ASSESSING OFFICER IN ALL PROBABILITY WOULD HAVE CON SIDERED A DETAILED EXAMINATION OF SUCH CLAIM A FUTILE EXERCISE. IN OU R OPINION, IN SUCH CIRCUMSTANCES, ASSESSING OFFICER HAD NO OCCASION TO CONSIDER THE CORRECT DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTI ON IN RESPECT OF TWO UNITS IN THE EARLIER YEARS. IN FACT, THIS WAS FIRST YEAR IN WHICH ASSESSEE WAS PREFERRING AN EFFECTIVE CLAIM UNDER SE CTION 80-IB OF THE ACT ATLEAST IN RESPECT OF THE SATELLITE GAS UNIT UN DER RAVVA BLOCK. 20. LD. DIT(INTERNATIONAL TAXATION) HAVING FOUND TH AT THE COMPUTATION WAS NOT DONE IN ACCORDANCE WITH THE SECTION, HAD MA DE AN OBSERVATION THAT ASSESSEE WAS NOT ELIGIBLE FOR SUCH DEDUCTION A T ALL AT PARA SIX OF HIS ORDER. NEVERTHELESS, IN OUR OPINION, THE FINAL DIR ECTION OF THE DIT(INTERNATIONAL TAXATION) IS VERY CLEAR. HE HAS ONLY DIRECTED THE A.O. 24 I.T.A. NO. 714/MDS/09 TO EXAMINE THE ALLOWABILITY OF DEDUCTION AND RECOMP UTE THE DEDUCTION UNDER SECTION 80-IB OF THE ACT, IN ACCORDANCE WITH LAW. THEREFORE, HIS OBSERVATION IN THE EARLIER PART OF THE ORDER THAT T HE CLAIM ITSELF WAS NOT ALLOWABLE, COULD AT THE BEST BE CONSIDERED AS PASSI NG REMARKS ONLY, NOT BINDING ON THE A.O. ASSESSING OFFICER, IN ANY CAS E, WAS DUTY BOUND TO EXAMINE THE ALLOWABILITY OF DEDUCTION IN ACCORDANCE WITH LAW. EFFECTIVE FINDING OF THE DIT(INTERNATIONAL TAXATION) WAS THAT ASSESSING OFFICER HAD NOT EXAMINED THE ISSUE IN THE MANNER REQUIRED UNDER ACT, BUT HAD ALLOWED THE CLAIM. 21. ADVERTING TO THE VARIOUS CASE LAWS RELIED ON BY THE LEARNED SENIOR COUNSEL IN SUPPORT OF HIS CONTENTION THAT DIT(INTER NATIONAL TAXATION) COULD NOT TRAVEL BEYOND WHAT WAS MENTIONED IN SHOW CAUSE NOTICE ISSUED UNDER SECTION 263, IN OUR OPINION, NONE OF T HESE ARE RELEVANT HERE, FOR THE SIMPLE REASON THAT THERE WAS NO EFFEC TIVE VARIANCE BETWEEN WHAT WAS MENTIONED IN THE NOTICE UNDER SECTION 263 AND ORDER UNDER SECTION 263 OF THE ACT. THE ORDER UNDER SECTION 26 3 WAS IN FACT THE NET EFFECT OF THE VARIOUS LACUNAE IN THE ORDER OF THE A .O. VIS--VIS THE CLAIM UNDER SECTION 80-IB(9) OF THE ACT. 22. THERE IS INDEED A CLAIM THAT ASSESSEE WAS NOT G IVEN A FAIR CHANCE TO EXPLAIN ITS CASE BY THE DIT (INTERNATIONAL TAXAT ION). RELIANCE IN THIS REGARD HAS BEEN PLACED BY LD. SENIOR COUNSEL ON THE DECISION OF HONBLE 25 I.T.A. NO. 714/MDS/09 JURISDICTIONAL HIGH COURT IN THE CASE OF SILVER CLO UD ESTATES PVT. LTD. (SUPRA). AS PER THE LD. SENIOR COUNSEL, THIS DECIS ION WAS AN AUTHORITY FOR THE RULE THAT A REVISIONARY ORDER HAS TO GIVE OUT T HE RELEVANT MATERIALS RELIED ON BY SUCH AUTHORITY AND ASSESSEE HAS TO BE GIVEN AN OPPORTUNITY TO REBUT IT. IN THE SAID CASE, WHICH WAS IN RELATI ON TO AGRICULTURAL INCOME- TAX ACT OF TAMIL NADU, SHOW CAUSE NOTICE WAS ISSUED FOR A REASON THAT ASSESSEE HAD CLAIMED EXCESS EXPENDITURE. AS PER LD . SENIOR COUNSEL, HERE ALSO THE REASON CITED BY THE DIT (INTERNATIONA L TAXATION) IS VERY SIMILAR. IN THE SHOW CAUSE NOTICE THE ALLEGATION I S THAT CLAIM FOR DEDUCTION UNDER SECTION 80-IB(9) WAS NOT COMPUTED I N ACCORDANCE WITH SECTION 80-IB(13) READ WITH SECTION 80-IA(5) OF THE ACT. THE ARGUMENT OF THE LD. SENIOR COUNSEL, WOULD APPEAR VERY ATTRACTIV E AT THE FIRST BLUSH. BUT THE FACT OF THE MATTER IS THAT THE SAME DECISION VI Z. THAT OF SILVER CLOUD ESTATES PVT. LTD. (SUPRA) WAS RELIED ON BY THE ASSE SSEE, IN THE COURSE OF ITS SUBMISSION BEFORE DIT (INTERNATIONAL TAXATION) AS WELL. LD. DIT(INTERNATIONAL TAXATION) HAS ALSO DEALT WITH THI S CASE IN HIS ORDER. HE HAS MENTIONED THAT HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF SILVER CLOUD ESTATES PVT. LTD. (SUPRA) WAS DEALING WITH RE VISIONARY POWER OF COMMISSIONER WHERE OPPORTUNITY OF BEING HEARD WAS N OT GIVEN TO THE ASSESSEE. THUS, WHAT COMES OUT IS THAT EVEN BEFORE THE DIT(INTERNATIONAL TAXATION), ASSESSEE HAD TAKEN A PLEA THAT DIT (INTERNATIONAL TAXATION) COULD NOT TRAVEL BEYOND WH AT WAS STATED IN THE 26 I.T.A. NO. 714/MDS/09 NOTICE UNDER SECTION 263 OF THE ACT. IN OTHER WORD S, THIS CAN ONLY MEAN THAT DIT(INTERNATIONAL TAXATION) HAD PUT ASSESSEE O N NOTICE THAT IT WAS NOT ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 8 0-IB OF THE ACT DURING THE COURSE OF THE PROCEEDING BEFORE HIM. BUT FOR T HIS, THERE WAS NO REASON WHY ASSESSEE RELIED ON THE DECISION IN THE C ASE OF SILVER CLOUD ESTATES PVT. LTD. (SUPRA) AND WHY DIT (INTERNATIONA L TAXATION) ANSWERED SUCH PLEA. HENCE ASSESSEES PLEA THAT IT WAS NOT GR ANTED AN EFFECTIVE OPPORTUNITY BY DIT (INTERNATIONAL TAXATION) ALSO CA NNOT BE ACCEPTED. 23. NOW COMING TO THE CASE OF CIT V. PVP VENTURES L IMITED IN TC(A) NO.1023 OF 2005 DATED 19.6.2012 OF HONBLE JURISDIC TIONAL HIGH COURT, ON WHICH MUCH RELIANCE HAS BEEN PLACED BY THE LD. SENI OR COUNSEL, NO DOUBT, IT WAS HELD THAT THERE COULD NOT BE A SUBSEQ UENT CHANGE OF REASON BASED ON THE REPLY GIVEN TO A NOTICE ISSUED UNDER SECTION 263 OF THE ACT. IN OUR OPINION, THIS CASE WOULD NOT HELP THE ASSESSEE IN ANY MANNER. AS ALREADY HELD BY US, EFFECT OF NON-COMPU TATION OF THE DEDUCTION IN THE MANNER SPECIFIED IN THE ACT, COULD HAVE RESULTED ONLY IN DENIAL OF SECTION 80-IB. WE CANNOT SAY THAT THE OR DER UNDER SECTION 263 WAS AT VARIANCE WITH THE SHOW CAUSE NOTICE. EVEN I F THERE WAS SOME VARIANCE, IT WAS AS ALREADY POINTED OUT BY US, NOT TO SUCH AN EXTENT NOT CURABLE UNDER SECTION 292B OF THE ACT. 27 I.T.A. NO. 714/MDS/09 24. AS ALREADY MENTIONED BY US, ASSESSEE HAD GIVEN ASSESSING OFFICER A SHORT DESCRIPTION OF AN ALLOCATION OF EXP ENSES BASED ON WHICH IT HAD PREFERRED A CLAIM UNDER SECTION 80-IB, BUT, UNL ESS AND UNTIL ASSESSEE COULD MAKE A MEANINGFUL LINK OF THE BASIS ADOPTED BY IT FOR SUCH ALLOCATION OF EXPENSES, WITH ITS EVENTUAL CLAI M OF DEDUCTION UNDER SECTION 80-IB OF THE ACT, IT COULD NOT BE CONSIDERE D AS A PROPER AND SUFFICIENT SUBMISSION OF DETAILS ENABLING A RATION ALE DECISION TO BE REACHED REGARDING THE QUANTUM OR ALLOWABILITY OF IT S CLAIM. THERE WAS NO LINKABLE CHAIN DISCERNIBLE FROM RECORDS, BEFORE THE ASSESSING OFFICER PERTAINING TO THE ALLOCATION OF EXPENSES, DATE OF C OMMENCEMENT OF PRODUCTION AND INDEPENDENT NATURE OF THE UNITS ON W HICH THE CLAIM WAS PREFERRED. THERE IS NOTHING TO SHOW THAT THESE WER E DULY CONSIDERED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PR OCEEDINGS. ASSESSEE HAVING GIVEN A BREAK-UP OF THE EXPENSES ALLOCATED T O THE UNITS ON WHICH IT WAS CLAIMING DEDUCTION UNDER SECTION 80-IB OF TH E ACT, ASSESSING OFFICER OUGHT HAVE BEEN PRODDED ON TO PROBE THE COR RECTNESS OF SUCH ALLOCATION AND DECIDE WHETHER THE CLAIM ITSELF WAS IN ACCORDANCE WITH LAW. THE ONLY CONCLUSION THAT CAN BE ARRIVED IN SU CH A SITUATION WAS THAT THERE WAS NO APPLICATION OF MIND BY THE ASSESSING O FFICER WITH REGARD TO SUCH A CLAIM. WHEN THERE IS NON-APPLICATION OF MIN D BY THE ASSESSING OFFICER, WE CAN DEFINITELY SAY THAT THE ORDER OF A. O. IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. IT IS NOT DISPUTED THAT THE CLAIM 28 I.T.A. NO. 714/MDS/09 WAS ALLOWED AS PUT FORWARD BY THE ASSESSEE WITHOUT ANY VARIATION IN THE AMOUNT. IN SUCH A SITUATION, THE ONLY RELEVANT QUE STION THAT HAS TO BE ANSWERED IS WHETHER DIT(INTERNATIONAL TAXATION) WAS JUSTIFIED IN INVOKING SECTION 263 OF THE ACT. THE MERITS OF THE CASE MAY NOT HAVE MUCH IMPACT. NON-APPLICATION OF MIND BY THE A.O., ON TH E DETAILS SUBMITTED IN THE FORM OF AUDIT REPORT AND BREAK-UP OF COST ALLOC ATION, IS WRIT LARGE IN THE ASSESSMENT ORDER. THE ASSESSMENT ORDER SIMPLY MENTIONS THAT THE CLAIM OF DEDUCTION UNDER SECTION 80-IB IS ALLOWED AS MADE BY THE ASSESSEE. FAILURE TO FORM AN OPINION IS CLEAR. T HIS HAS DEFINITELY RESULTED IN SUCH ASSESSMENT BEING ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF REVENUE. THE EVENTS WHICH UNFOLDED DUR ING ASSESSMENT PROCEEDINGS GIVE RISE TO A STRONG SIGNAL THAT THERE WAS NO APPLICATION OF MIND, WHICH A REASONABLE MAN SITTING IN THE CHAIR O F A REVENUE OFFICER SHOULD HAVE DONE OR IN OTHER WORDS, THERE WAS AN OM ISSION TO APPLY THE MIND IN A MANNER A REASONABLE MAN WOULD HAVE DONE I N THE GIVEN CIRCUMSTANCES, CAUSING DETRIMENT TO THE REVENUE. I T IS TO ADDRESS SUCH A SITUATION, THAT SECTION 263 HAS BEEN PROVIDED FOR IN THE ACT. MAY BE IT IS TRUE THAT EVERY CLAIM, WHICH IS ALLOWED TO AN AS SESSEE, NEED NOT BE ELABORATELY DEALT WITH IN AN ASSESSMENT ORDER. HOW EVER, THE CHAIN OF EVENTS SHOULD SHOW THAT THERE WAS APPLICATION OF MI ND ATLEAST ON THE VERACITY OF A CLAIM MADE BY THE ASSESSEE. THIS IS NOT SEEN HERE. IT MIGHT BE TRUE THAT ELIGIBLE UNDERTAKING NEED NOT MA INTAIN SEPARATE 29 I.T.A. NO. 714/MDS/09 ACCOUNT FOR CLAIMING DEDUCTION UNDER SECTION 80-IB OF THE ACT, BUT THESE WERE ASPECTS, WHICH WERE NEVER VERIFIED BY THE ASSE SSING OFFICER AT THE TIME OF COMPLETING THE ASSESSMENT. 25. WE, THEREFORE, OF THE OPINION THAT THE FINDING OF DIT(INTERNATIONAL TAXATION) THAT THE ASSESSMENT WAS ERRONEOUS INSOFAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE CANNOT BE F AULTED. WE DO NOT FIND ANY REASON TO INTERFERE IN SUCH AN ORDER OF DIT(INT ERNATIONAL TAXATION). 26. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 20 TH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 20 TH DECEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) DIT(IT), CHENNAI-34 (4) JDIT(IT), CHENNAI (5) D.R. (6) GUARD FILE