Income Tax: Denial of 80lA Benefit In 4th Year Of Assessment, U-Turn By Department Is Not Justified: Delhi High Court

The Delhi High Court has held that the Principal Commissioner Income Tax (PCIT) wrongly invoked jurisdiction under Section 263 of the Income Tax Act and fell in error by taking a U-turn in the fourth assessment year, thereby denying the benefit of Section 80IA of the Income Tax Act.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that no material was brought on record by the PCIT to show that merely by migration from Internet Protocol-Virtual Private Network (IP-VPN) to National Long Distance-International Long Distance (NLD-ILD) license, a new and different “undertaking” of the assessee within the meaning of Section 80IA(4)(ii) came into existence.

The respondent or assessee is in the business of providing telecommunications and related support services, including virtual private networks, global management networks, and internet services, to various customers within and outside India. The assessee filed a return of income, declaring its total income as nil on the basis of deductions under Section 80IA and book profit. The assessee filed its revised return of income, which was duly processed under Section 143(1).

The return of income filed by the assessee having been selected for scrutiny, notice under Section 143(2) was served upon it. The reference under Section 92CA(1) was made to the Transfer Pricing Officer (TPO), Mumbai, to determine the arm's length price since the respondent or assessee had entered into international transactions with associated enterprises for an amount exceeding Rs. 15,00,00,000. The TPO made an upward adjustment to the arm's length price in relation to the international transaction for the assessment year 2010–11 under Section 92CA(3). Consequently, a draft order proposing an addition of the amount was issued under Section 92CA(4), against which the assessee raised objections before the Dispute Resolution Panel (DRP).

The DRP decided the objections of the assessee, directing the TPO to determine the arm's length price, so on December 30, 2014, the TPO furnished a revised working of the adjustment. The Assessing Officer passed the order by assessing the income of the assessee by way of addition on account of the adjustment to the arm's length price and deduction under Section 80IA.

The PCIT invoked the revisional jurisdiction under Section 263 and issued a show cause notice dated March 15, 2017 to the assessee. In the order passed under Section 263, the PCIT took the view that the assessee was not eligible for any deduction under Section 80IA(4)(ii).

The department contended that PCIT was justified in invoking revisional powers under Section 263 since, in his opinion, the assessment order under Section 143(3) was erroneous and prejudicial to the interest of revenue.

The assessee contended the revisional powers were wrongly exercised since a mere difference of opinion between the assessing officer and the PCIT cannot serve as a basis to invoke such powers. The department allowed deductions under Section 80IA to the assessee in the three preceding assessment years; there was no justification to take a U-turn in the fourth year, invoking the revisional jurisdiction.

The court held that the respondent/assessee was being allowed deduction under Section 80IA of the Act since AY2007-08, but the appellant/assessee took a U-turn by denying the benefit in AY 2010-11, that too invoking jurisdiction under Section 263 of the Act, which cannot be justified.

Counsel For Petitioner: Shlok Chandra

Counsel For Respondent: Deepak Chopra

Case Title: Pr. Commissioner Of Income Tax Versus M/S Bt Global Communications India Pvt. Ltd.

Citation: 2024 LiveLaw (Del) 34

Case No.: ITA 1395/2018

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