2009 (1) TMI 764 - AT - Income Tax

Summary

Issues involved: Appeal against order u/s 263 of the IT Act by Commissioner of Income-tax, City - 5, Mumbai dated 05.03.2007 regarding deduction u/s 80IB of the Act.

Issue 1: Jurisdiction of invoking Section 263
The appellant challenged the order u/s 263, arguing that the Assessment Order dated 23.08.2006 was not erroneous or prejudicial to the revenue's interest. The appellant contended that the CIT erred in invoking Section 263 based on a mere change of opinion by the Assessing Officer.

Issue 2: Eligibility of Deduction u/s 80IB
The assessment order accepted the assessee's claim of deduction u/s 80IB, resulting in a Nil total income. However, discrepancies were found in the inclusion of certain receipts in the profit eligible for deduction. The CIT initiated proceedings u/s 263 as the AO had not properly examined the nature of these receipts, which were not derived from the manufacturing activity required for deduction u/s 80IB.

Issue 3: Application of Mind by Assessing Officer
The appellant argued that the AO had enquired about the deduction u/s 80IB, suggesting a change of opinion by the CIT. However, it was acknowledged that the AO did not inquire about the specific receipts in question. The CIT held that the AO's failure to consider these receipts made the order erroneous and prejudicial to revenue, justifying the revision u/s 263.

The CIT's decision was based on the lack of proper enquiries by the AO regarding the nature of receipts included in the deduction claim u/s 80IB, as highlighted in relevant case law. The CIT's order was upheld, stating that the AO's failure to apply his mind on crucial issues rendered the order erroneous and prejudicial to revenue, allowing for revision u/s 263.

In conclusion, the Tribunal agreed with the CIT's findings, emphasizing the importance of proper examination of receipts for deduction u/s 80IB. As the AO's order lacked proper consideration of these crucial aspects, it was deemed erroneous and prejudicial to revenue, justifying the revision u/s 263. The grounds raised by the appellant were rejected, and the appeal was dismissed.