2015 (2) TMI 1121 - AT - Income Tax

Revision u/s 263 - basic and crucial documents required for verification of claim u/s 10AA have neither been called for, nor verified and placed on record by the AO including the certificate issued by the Development Commissioner (SEZ) - relevant clause of section 10AA has not been mentioned for claiming deduction - Held that - Our attention is drawn to audit reports filed along with return of income which contains relevant information about the establishment of SEZ Zone as to allowable claim. Annexure A enclosed thereto contends the date of registration, amount of export and other relevant information. Thus there is no merit in the allegation of the ld. CIT in this behalf. With these documents on record, we are unable to subscribe the view of the ld. CIT. The crucial documents were not asked by the AO not produced by the assessee. Form No. 56F and Annexure A thereto does not prescribe any mentioning of sub-clause. Besides, the Hon ble Rajasthan High Court in the case of CIT vs. Rajasthan Fasteners (P) Ltd. (2014 (6) TMI 291 - RAJASTHAN HIGH COURT ) held that non-mentioning of section and wrong mentioning of Section cannot come in the way of allowing claim which is otherwise eligible to the assessee. Since the requisite form does not require mentioning of sub-clause besides the Hon ble Jurisdictional High Court does not consider it to be a requirement which can disentitle the assessee. Respectfully following Hon ble jurisdictional High Court judgment we have to overrule this allegation. Apropos the inflated profits and expenditure, the ld. Counsel for the assessee has contended that separate books of account for SEZ Unit are maintained along with profit and loss account , expenses vouchers etc. The books of account of the assessee have been upheld by the AO, ld. CIT has not considered upholding of the accounts by AO to be an error. This leads to a very vague situation when the books of account of the assessee are upheld and not challenged at the same time allegations are raised about contents thereof. The ld. CIT while passing the order u/s 263 of the Act has not referred to any other mistake. In consideration of the foregoing facts, we are of the view that the order passed by the AO is neither erroneous nor prejudicial to the interest of Revenue. - Decided in favour of assessee

Summary

Issues Involved:

1. Legality and validity of the order under Section 263 of the Income Tax Act.
2. Whether the order under Section 143(3) passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of Revenue.
3. Justification for invoking Section 263 proceedings and setting aside the AO's order.
4. Consideration of case laws and their applicability to the facts of the case.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Order under Section 263:

The assessee challenged the order under Section 263 passed by the Commissioner of Income Tax (CIT) as illegal, void ab initio, and unjustifiable, deserving annulment. The CIT had issued a show cause notice based on audit objections, alleging that the exemption under Section 10AA was granted without proper verification and documentation. The CIT identified specific errors, such as the absence of the Development Commissioner's certificate, unexamined conditions for exemption, high net profit from the exempt unit, and unverified expenditures. The assessee countered by providing detailed replies and evidence, including the Development Commissioner's certificate, allotment of plot, CA's report in Form No. 56F, and proof of new plant and machinery purchases. The Tribunal found that the CIT's order lacked justification as the AO had duly verified the records and documents before granting the exemption.

2. Erroneous and Prejudicial Nature of the AO's Order:

The CIT held that the AO's order was erroneous and prejudicial to the interest of Revenue because the AO did not place material on record to confirm the exemption's validity. The CIT argued that the AO failed to verify the inflated profits and genuine expenditures of the exempt unit. The Tribunal, however, noted that the AO had conducted proper inquiries, examined books of accounts, supporting records, and documents, and allowed the exemption after due verification. The Tribunal emphasized that the AO's findings were based on the examination of books of accounts, audited statements, and supporting evidence, making the assessment order neither erroneous nor prejudicial to the interest of Revenue.

3. Justification for Invoking Section 263 Proceedings:

The CIT invoked Section 263 proceedings, alleging that the AO did not mention the relevant sub-clause of Section 10AA and failed to verify the commencement of manufacture and export of goods. The assessee argued that the omission of the sub-clause was not detrimental as the valid claim under Section 10AA was made, and the necessary evidence was provided. The Tribunal highlighted that the AO had examined the books of accounts, verified the supporting records, and allowed the exemption after proper inquiries. The Tribunal found no merit in the CIT's allegations and concluded that the AO's order was neither erroneous nor prejudicial to the interest of Revenue.

4. Consideration of Case Laws and Applicability:

The assessee cited various case laws to support their contention that the AO's order was valid and not erroneous. The CIT dismissed these case laws as distinguishable from the facts of the case. The Tribunal, however, found that the CIT's dismissal was not justified as the AO had conducted proper inquiries and verified the records. The Tribunal referred to several judgments, including CIT vs. Rajasthan Fasteners (P) Ltd., CIT vs. DLF Ltd., and CIT vs. Sunbeam Auto Ltd., which supported the assessee's position that mere non-mentioning of a section or sub-clause cannot disallow an otherwise eligible claim. The Tribunal concluded that the CIT's order under Section 263 was based on presumptive findings and lacked material evidence to substantiate the allegations.

Conclusion:

The Tribunal quashed the CIT's order under Section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the interest of Revenue. The Tribunal emphasized that the AO had conducted proper inquiries, verified the records, and allowed the exemption after due application of mind. The appeal of the assessee was allowed, and the order under Section 263 was set aside.