2013 (11) TMI 775 - AT - Income Tax

Jurisdiction of CIT to revise an order u/s 263 - Deduction u/s 80IB - doctrine of merger - AO denied deduction - The sole ground on which the deduction is denied by the AO was that the project was approved prior to 1/10/1998 and according to one of the conditions laid down in section 80 IB(10), deduction can be allowed only in a case where project has started after 1st day of Oct.1998 - Held that - CIT(A) has decided the issue relating to deduction under section 80 IB (10). A careful perusal of the order passed by Ld. CIT(A) will reveal that neither he has applied his mind on the fulfillment of condition laid down in Explanation (ii) section 80 IB(10) and nor it was the case of the assessee that it has fulfilled the other condition/ conditions regarding completion of project as this was never the issue which was either raised by the assessee before Ld. CIT(A) nor it can be said that Ld. CIT(A) has considered and decided this issue. The language of section 263, clause (c) is very clear and unambiguous. The restriction is for the matters which have been considered and decided in the appeal. On perusal of order of Ld. CIT(A) can it be said by any stretch of imagination that he has considered and decided the issue regarding admissibility of the deduction under section 80 IB(10) on the ground of completion of the project which was to be considered as complete only on furnishing completion certificate to be issued by the local authority under Explanation (ii). Therefore, it can be said that the issue regarding completion of project was never considered and decided by the Ld. CIT(A). It can also not be said that if an assessee has not fulfilled the condition as laid down in Explanation (ii) than also he can be held to be entitled for deduction u/s. 80 IB(10). Therefore, looking into the plain provisions of language of clause (c) of section 263, it is held that Ld. CIT(A) has never considered and decided the issue regarding compliance of condition by the assessee regarding furnishing of completion certificate to be issued by the the local authority as per provisions of Explanation (ii). Therefore, doctrine of merger as pleaded by the assessee is not applicable to the facts of this case. It is difficult to accept the proposition that when deduction claimed under a particular section is subject matter of appeal and issue has been decided by the Appellate Authority, the jurisdiction of Ld. CIT under section 263 is totally precluded on that section. Such a contention will be contrary not only to the express language of clause (c) to section 263 but is also contrary to cardinal principle governing the doctrine of merger. According to these principles, while considering the cases of merger it is obligatory upon Courts to carefully go through the appellate or revisional order and also the concerned provisions of the statute. After such exercise the issue of merger should be carefully determined. There may be several judicial pronouncements in which Courts have held that when a particular deduction was considered by the Appellate Authority then the jurisdiction of Commissioner Under section 263 is ousted . At the same time there are several cases in which Courts have held that despite the fact that whether deduction under a particular section was considered and decided by the first appellate authority then also doctrine of merger would not be applicable. This has so been held after perusing the revision order as well as appellate order - CIT has rightly invoked his jurisdiction under section 263 and the assessment order did not merge with the appellate order - Decided against assessee.

Issues Involved:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Entitlement to deduction under section 80 IB(10) of the Income Tax Act, 1961.
3. Whether the assessment order was erroneous and prejudicial to the interests of Revenue.
4. Applicability of the doctrine of merger regarding the assessment order and the appellate order.
5. Fulfillment of conditions under section 80 IB(10)(a) and Explanation (ii) for claiming deduction.
6. Consideration of legal precedents and relevant facts ignored by the CIT.

Issue-Wise Detailed Analysis:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961:

The primary issue revolves around the validity of the order passed by the CIT under section 263 of the Income Tax Act, 1961. The CIT invoked section 263 on the grounds that the AO did not consider the condition of completion of the project before 31/03/2008 while allowing the deduction under section 80 IB(10). The Tribunal upheld the CIT's order, stating that the AO failed to take into consideration the statutory condition for allowability of deduction, making the assessment order erroneous and prejudicial to the interest of revenue.

2. Entitlement to deduction under section 80 IB(10) of the Income Tax Act, 1961:

The assessee claimed deduction under section 80 IB(10) for the assessment year 2007-08, which was initially disallowed by the AO on the ground that the project commenced before 01/10/1998. The CIT(A) allowed the deduction based on the commencement date, but the CIT later invoked section 263, emphasizing the need to also consider the completion of the project by 31/03/2008 as per Explanation (ii) of section 80 IB(10). The Tribunal observed that the AO did not examine the fulfillment of the condition regarding the completion of the project, thus making the assessment order erroneous.

3. Whether the assessment order was erroneous and prejudicial to the interests of Revenue:

The Tribunal held that the assessment order was erroneous and prejudicial to the interests of Revenue because the AO failed to consider the condition of completion of the project by 31/03/2008, which was a statutory requirement for claiming the deduction under section 80 IB(10). The AO's focus was solely on the commencement of the project, and no enquiry was made regarding the completion, which is essential for the deduction.

4. Applicability of the doctrine of merger regarding the assessment order and the appellate order:

The Tribunal examined whether the assessment order had merged with the appellate order passed by CIT(A). It was concluded that the issue regarding the completion of the project was neither considered nor decided by the CIT(A). The doctrine of merger was not applicable as the appellate order did not address the condition of completion of the project, which was the basis for the CIT's invocation of section 263.

5. Fulfillment of conditions under section 80 IB(10)(a) and Explanation (ii) for claiming deduction:

The Tribunal emphasized that for claiming deduction under section 80 IB(10), the project must be completed by 31/03/2008, and a completion certificate from the local authority must be obtained. The AO did not examine whether this condition was fulfilled. The Tribunal noted that part occupation certificates were issued, but no completion certificate was obtained, thus failing to meet the statutory requirement.

6. Consideration of legal precedents and relevant facts ignored by the CIT:

The assessee argued that the CIT ignored relevant facts and legal precedents. However, the Tribunal found that the CIT's order was justified as the AO did not consider the statutory condition of completion of the project. The Tribunal referenced several legal precedents, including the decisions in the cases of Malabar Industrial Company, Gee Vee Enterprises, and Ranbaxy Laboratories, to support the view that the assessment order was erroneous due to the AO's failure to consider the applicable legal provisions.

Conclusion:

The Tribunal upheld the CIT's invocation of section 263, concluding that the assessment order was erroneous and prejudicial to the interests of Revenue due to the AO's failure to consider the statutory condition of completion of the project for claiming deduction under section 80 IB(10). The doctrine of merger was not applicable as the appellate order did not address the issue of completion. The appeal filed by the assessee was dismissed.

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