2011 (11) TMI 390 - HC - Income Tax

Deduction - AO allowed deduction of interest income and other Income under 80IA - CIT Invoke 263 as lack of enquiry - Tribunal relied on submissions of assessee - Held That - Tribunal ought to ask CIT to examine the said factual aspect rather than giving their own factual finding without there being factual examination and verification or full and proper rebuttal. Without anything more, the mere submission of a letter to the Assessing Officer giving bifurcation does not necessarily mean that proper verification and investigation was done and accepted. Revocation by CIT under 263 is valid.

Summary

Issues:
1. Correctness of quashing of order under Section 263 of the Act by the Income Tax Appellate Tribunal.

Analysis:
The case involved the assessment year 2005-06 where the respondent-assessee declared a loss and the Assessing Officer calculated the book profits under Section 115JB of the Act. The Commissioner of Income Tax (CIT) issued a notice under Section 263 as he believed that the deduction under Section 80IA had been wrongly computed. The CIT found a lack of enquiry and investigation by the Assessing Officer, leading to the order being considered both erroneous and prejudicial to the revenue.

The assessee argued that the interest income included amounts related to different units, some of which were eligible for deduction under Section 80IA. The CIT set aside the order of the Assessing Officer, directing a fresh assessment. However, the tribunal disagreed with the CIT, stating that the Assessing Officer had examined the issues adequately during the original assessment. The tribunal found no error in the original order and upheld it.

The High Court explained that Section 263 allows the CIT to intervene when the order is both erroneous and prejudicial to the revenue. An order is erroneous if it deviates from the law or is based on a mistaken view of the law. The term "prejudicial to the interest of the Revenue" is broadly interpreted, encompassing cases where the Assessing Officer fails to apply the correct perspective. The court cited precedents to clarify the conditions under which the revisionary power under Section 263 can be exercised.

The High Court concluded that the tribunal had erred in accepting the bifurcation of interest income without proper verification or investigation. It was deemed necessary for the CIT to examine the factual aspects before making a decision. Therefore, the question of law was answered in favor of the Revenue, and the CIT was directed to pass a fresh order under Section 263 after hearing the assessee and addressing the raised contentions and issues.

In summary, the judgment focused on the correct application of Section 263 regarding the assessment of deduction under Section 80IA, emphasizing the importance of proper investigation and examination of factual aspects before making a decision to ensure the assessment is not erroneous or prejudicial to the revenue.