2008 (5) TMI 458 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order u/s 263.
2. Retention of the assessment order u/s 143(3).
3. Allowance of deduction u/s 80-IB(10).
4. Business formation by splitting up or reconstruction.
5. Applicability of section 80-IB(2).
6. Treatment of units of flats and their area.
7. Assessment order being erroneous or prejudicial to the revenue.
8. Deduction u/s 80-IB(10).

Summary:

1. Validity of the Order u/s 263:
The assessee contended that the CIT's order u/s 263 was ab initio void and bad in law. The CIT had issued a show-cause notice u/s 263, claiming the assessment orders were erroneous and prejudicial to the revenue as no proper enquiry was made by the Assessing Officer (AO). The Tribunal found that the AO had indeed made necessary enquiries and allowed the deduction u/s 80-IB(10) after due consideration. Thus, the CIT's order u/s 263 was deemed unsustainable.

2. Retention of the Assessment Order u/s 143(3):
The assessee argued that the original assessment order u/s 143(3) should be retained in its original form. The Tribunal noted that the AO had conducted a thorough enquiry and found no errors in the original assessment. Therefore, the assessment order was to be retained as it was.

3. Allowance of Deduction u/s 80-IB(10):
The assessee claimed that all conditions for deduction u/s 80-IB(10) were satisfied. The Tribunal observed that the AO had verified the details and allowed the deduction. The CIT's contention that the assessee was not an industrial undertaking was rejected, as section 80-IB(10) applies to undertakings developing and building housing projects, not necessarily industrial undertakings.

4. Business Formation by Splitting Up or Reconstruction:
The CIT argued that the business was formed by splitting up or reconstruction of an existing business. The Tribunal found that the assessee had provided evidence that no construction activity had commenced on the plot by the previous entities, and it was barren land at the time of the assessee's formation. Thus, it was not a case of reconstruction.

5. Applicability of Section 80-IB(2):
The CIT's claim that section 80-IB(2) was applicable was rejected. The Tribunal clarified that section 80-IB(2) pertains to industrial undertakings manufacturing or producing articles, whereas section 80-IB(10) relates to housing projects. Therefore, the conditions of section 80-IB(2) were not applicable for claiming deduction u/s 80-IB(10).

6. Treatment of Units of Flats and Their Area:
The CIT contended that the AO failed to verify the area of certain coupled flats. The Tribunal noted that the AO had relied on the statements of architects and the DVO's report, which confirmed that the area of none of the flats exceeded 1,000 sq. ft. Thus, the AO's assessment was correct.

7. Assessment Order Being Erroneous or Prejudicial to the Revenue:
The CIT argued that the assessment order was erroneous and prejudicial to the revenue. The Tribunal found that the AO had made a detailed enquiry and accepted one possible view, which cannot be reversed by the CIT u/s 263. Therefore, the assessment order was neither erroneous nor prejudicial to the revenue.

8. Deduction u/s 80-IB(10):
The Tribunal concluded that the assessee was entitled to the deduction u/s 80-IB(10) as all conditions were satisfied, and the AO had correctly allowed the deduction in the original assessment.

Conclusion:
The Tribunal cancelled the CIT's order u/s 263 and allowed the appeals of the assessee for both assessment years 2004-05 and 2005-06.