2008 (1) TMI 926 - AT - Income Tax

Summary

Issues Involved:
1. Whether the order passed by the CIT u/s 263 of the Income Tax Act, 1961 was against the law, facts, and material on record.
2. Whether the CIT failed to consider the report in form 10 CCB and the claim of the assessee u/s 80 IB.
3. Whether the order passed by the CIT violated the principles of natural justice.
4. Whether the CIT failed to appreciate the consistency in the assessee's claim allowed in the past.
5. Whether the twin conditions of the order being erroneous and prejudicial to the interest of revenue were satisfied.
6. Whether the CIT's order lacked specific reasons for being erroneous and prejudicial.

Summary:

1. Order Against Law, Facts, and Material:
The assessee filed an appeal against the CIT's order u/s 263, challenging it on the grounds that it was against the law, facts, and material on record. The CIT had initiated proceedings u/s 263 on the basis that the assessee did not fulfill the conditions laid down u/s 80 (IA)(7) as no audit report in form 10 CCB was furnished along with the return of income.

2. Consideration of Form 10 CCB:
The assessee argued that the audit report in form 10 CCB was submitted during the assessment proceedings, which should be considered sufficient compliance. The CIT did not accept this submission, stating that the furnishing of the audit report along with the return was mandatory.

3. Violation of Natural Justice:
The assessee contended that the CIT's order was contrary to the principles of natural justice as the order was based on an issue not mentioned in the show cause notice, thus denying the assessee an opportunity to explain.

4. Consistency in Past Claims:
The assessee argued that the claim had been allowed in the past and should not have been disturbed without new facts or material. The CIT's order was against the settled principle that consistency should not be disturbed.

5. Erroneous and Prejudicial Conditions:
The CIT held that the assessment was prejudicial to the interest of revenue and erroneous as the assessee did not satisfy the conditions laid down u/s 80 (IA). However, the Tribunal found that the order was not erroneous as the audit report was submitted during the assessment proceedings, fulfilling the compliance requirements.

6. Lack of Specific Reasons:
The Tribunal noted that the CIT's order did not specify how the assessment order was erroneous and prejudicial, thus failing to justify the exercise of jurisdiction u/s 263.

Conclusion:
The Tribunal quashed the CIT's order u/s 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of revenue. The appeal filed by the assessee was allowed. The Tribunal emphasized that the Department cannot travel beyond the show cause notice and that proper enquiries were made by the AO during the assessment proceedings.