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2012 (12) TMI 88 - AT - Income Tax


Issues Involved:
1. Invocation of Section 263 of the Income Tax Act by the CIT.
2. Eligibility of the assessee for deduction under Section 35D of the Income Tax Act.

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act by the CIT:
The primary issue was whether the CIT was justified in invoking the provisions of Section 263 of the Income Tax Act. The CIT noted deficiencies in the assessment order passed by the DCIT under Section 143(3), specifically that the assessee's claim of deduction under Section 35D was not adequately examined. The CIT issued a notice under Section 263, considering the assessment order erroneous and prejudicial to the interests of the revenue. The assessee argued that the AO had examined the claim and allowed it after due consideration, thus the invocation of Section 263 was unwarranted. However, the tribunal upheld the CIT's action, stating that the AO had not discussed or examined the issue in detail, making the assessment order erroneous and prejudicial to the revenue.

2. Eligibility of the Assessee for Deduction under Section 35D:
The second issue was whether the assessee, a banking company, was eligible for deduction under Section 35D for the amortization of IPO expenses. The assessee claimed a deduction of Rs. 3.27 crore, being one-fifth of the total IPO expenses, arguing that it qualified as an "industrial undertaking" based on legal precedents. The CIT rejected this claim, stating that banks do not qualify as industrial undertakings for the purposes of Section 35D. The tribunal supported this view, referencing the Hon'ble Delhi High Court's decision in Ansal Housing & Construction Ltd., which clarified that only entities involved in manufacturing activities could be considered industrial undertakings under Section 35D. The tribunal also noted that the amendment by the Finance Act, 2008, which omitted the word "industrial," was substantive and applied prospectively, thus not benefiting the assessee retrospectively.

Conclusion:
The tribunal upheld the CIT's order under Section 263, affirming that the AO's failure to scrutinize the deduction claim rendered the assessment order erroneous and prejudicial to the revenue. Additionally, it was concluded that the assessee, being a bank, did not qualify as an industrial undertaking for the purposes of Section 35D, and thus, the deduction claim was not allowable. The appeal filed by the assessee was dismissed.

 

 

 

 

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