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2012 (12) TMI 693 - AT - Income TaxJurisdiction power u/s 263 by CIT(A) - non preparation of accounts on the basis of clause 7 of the AOP agreement dated 29.04.2003 - deduction under Section 801B(10) - Held that - According to clause-7 of the agreement SPPL is entitled to 35% share of the gross sale proceeds of the units inclusive of the value of the land. According to distribution in the account of the assessee SPPL has received Rs.15.11 crore which is 35% of gross sale proceeds of the unit amounting to Rs.43.17 crores. A sum of Rs.11.62 crore is credited to the account of SPPL on account of land etc. and Rs.3.49 crore is considered as profit share of SPPL. Out of balance 65%, after including the MSEB and incidental charges and reducing the developmental charges a sum of Rs. 10.76 crore has been considered as profit share of RRKC. Therefore, the distribution of profit made by the assessee between its members is in accordance with clause 7 of the agreement. The interpretation of clause-7 sought to be adopted by CIT will be against the very intent and purpose for which the assessee AOP has been formed and if such interpretation is adopted it will tantamount to denial of existence of AOP which is not even the case of CIT. The assessee AOP in the present case has been assessed as AOP and found to have fulfilled the condition laid down in section 80 IB(10) and has been held to be eligible for such deduction. The quantum of deduction under section 80 IB (10) will depend on the income earned from eligible project. The quantum of deduction will not depend upon the mode of distribution of shares amongst the members of AOP as income of AOP is taxable at maximum marginal rate. Therefore, manner in which the AOP distribute its project has no bearing over eligible quantum of deduction under section u/s. 80IB (10) as the eligible quantum will be gross receipts from the project reduced by expenses incurred on the project. Distribution of revenue in the account of the assessee is inappropriate and has been benefited by larger deduction - Held that - Such observations of CIT are incorrect, firstly, on the ground that even distribution of revenue in the books of account of the assessee cannot be said to be contrary to the purpose and intent described in clause-7 of the agreement. Secondly, the allowability or otherwise of deduction under section 80 IB(10) is not dependent upon the manner in which the profit has been distributed among the members of AOP but it depend upon the fulfillment of the conditions laid down in that section and also the deduction is available to an undertaking and not to the individual constituent of an undertaking - the impugned assessment order is neither erroneous nor prejudicial to the interest of revenue on account of allocation of profit between members as per accounts of the assessee as allocation of profit in the accounts of the assessee is in accordance with clause-7 of the agreement and manner of allocation of profit in the account cannot alter the quantum of deduction available to AOP under section 80 IB(10). Doctrine of merger - held that - As per Oil India Ltd. vs. CIT 1981 (9) TMI 64 - CALCUTTA HIGH COURT if an assessment is subject matter of appeal then any ground which was held in favour of asssee can also be held against him though the appeal was preferred by the assessee. Such jurisdiction of AAC is undisputable and once the appeal has been preferred before the AAC on any aspect of the quantum, the Ld. CIT cannot assume jurisdiction otherwise an anomalous position would arise - Thus as in the present case once deduction under section 80 IB(10) was subject matter of appeal before Ld. CIT(A), it covered all aspects of the matter relating to deduction under section 80 IB(10) and the order of AO on that issue had merged with the order of CIT(A). Therefore, according to clause (c) of Explanation to section263(1), Ld. CIT was debarred from exercising jurisdiction u/s.263 as the subject matter of the appeal was deduction under section 80 IB (10) - in favour of assessee.
Issues Involved:
1. Jurisdiction and validity of the order under Section 263 of the Income Tax Act. 2. Determination of whether the assessment order was erroneous and prejudicial to the interests of the revenue. 3. Applicability of the merger doctrine concerning the assessment order and the appellate order. Issue-Wise Detailed Analysis: 1. Jurisdiction and Validity of the Order under Section 263: The appellant contended that the Commissioner of Income Tax (CIT) erred in passing the order under Section 263, which was deemed "bad in law and without jurisdiction." The CIT issued a notice during the pendency of the appeal before the ITAT, questioning the assessment order's validity. The CIT argued that the allocation of revenue between the members of the Association of Persons (AOP) was not in accordance with clause 7 of the AOP agreement, leading to an undue benefit in the form of a higher deduction under Section 80 IB(10). The Tribunal found that the CIT's interpretation was factually incorrect and that the allocation was indeed in line with the agreement. 2. Erroneous and Prejudicial to the Interests of the Revenue: The CIT held that the assessment order was erroneous and prejudicial to the revenue's interests because the entire amount of Rs. 15.11 crore should have been taxable in the hands of M/s Sanand Properties Pvt. Ltd. (SPPL) without the benefit of deduction under Section 80 IB(10). The assessee argued that the deduction was subject to appeal and had merged with the appellate order, thus barring revisionary power under Section 263. The Tribunal agreed with the assessee, noting that the allocation of profit was done correctly per the agreement and that the assessment order was neither erroneous nor prejudicial to the revenue's interests. 3. Applicability of the Merger Doctrine: The assessee claimed that the assessment order had merged with the appellate order, thus preventing the CIT from invoking Section 263. The Tribunal referred to multiple case laws, including decisions from the Hon'ble Supreme Court and various High Courts, supporting the view that once an issue is subject to appeal, the assessment order merges with the appellate order. The Tribunal concluded that the CIT's order under Section 263 was invalid as the subject matter of the appeal was the deduction under Section 80 IB(10), which had already been decided in favor of the assessee. Conclusion: The Tribunal quashed the CIT's order under Section 263, holding that the assessment order was neither erroneous nor prejudicial to the revenue's interests. The appeal filed by the assessee was allowed, and the Tribunal emphasized that the allocation of profit was in accordance with the AOP agreement and that the issue of deduction under Section 80 IB(10) had already merged with the appellate order, thus barring the CIT from exercising revisionary powers.
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