2015 (4) TMI 682 - HC - Income Tax

Entitlement to deduction under section 80IB(10) - Review u/s 263 - Held that - The contract between the two parties was self explanatory and the interpretation placed by the Assessee on clause 7 and claiming deduction under section 80IB(10) is in order. The interpretation of one of the Assessing Officer could not have substituted the parties interpretation of the relevant clause 7 of the AOP agreement with his own reasoning and that too to the detriment of the Assessee. The facts in the present case also reveal that the conclusions arrived at by the Tribunal vide order dated 12th October, 2012 are neither perverse nor giving rise to any error of law apparent on the face of the record. The issue cannot be reopened in the manner sought to be done in the present case and section 263 of the Act could not be resorted to for the purpose. The order of the Assessing Officer had obviously merged with the order of the First Appellate Authority. Accordingly, we find that the subject Appeal does not raise any substantial question of law. The Appeal is, therefore, dismissed. - Decided against revenue.

Summary

Issues:
1. Incorrect allocation of revenue and its impact on deduction under section 80IB(10).
2. Interpretation of clause 7 of the AOP agreement regarding revenue allocation.
3. Calculation and acceptance of eligible deduction under section 80IB(10).
4. Allowance of deduction under section 80IB(10) for a specific member of AOP based on the agreement.
5. Correct invocation of power under section 263 of the Income Tax Act.
6. Merger of orders and jurisdiction under section 263.

Issue 1: Incorrect Allocation of Revenue and Deduction under Section 80IB(10):
The case involved a dispute over the incorrect allocation of revenue and its impact on the deduction under section 80IB(10). The Tribunal had to determine whether the issue of incorrect revenue allocation had merged in the Commissioner of Income Tax (Appeals) order, even though it was not examined by the Assessing Officer. The Tribunal concluded that the power under section 263 was wrongly invoked, as the deduction under section 80IB(10) depended on the income earned from the project, not the distribution of shares among AOP members.

Issue 2: Interpretation of Clause 7 of AOP Agreement:
Another issue revolved around the interpretation of clause 7 of the AOP agreement concerning the method of revenue allocation between AOP members. The Tribunal analyzed the clause, which specified the revenue sharing arrangement between the parties. It was observed that the interpretation of the clause by the Commissioner of Income Tax (Appeals) was incorrect, and the Assessee's interpretation for claiming deduction under section 80IB(10) was considered valid.

Issue 3: Calculation and Acceptance of Deduction under Section 80IB(10):
The Tribunal had to determine the correctness of the calculation and acceptance of the deduction under section 80IB(10). The Commissioner of Income Tax (Appeals) had directed the Assessing Officer to allow the claim for deduction, which was challenged by the Revenue. The Tribunal upheld the Assessee's fulfillment of conditions for the deduction under section 80IB(10) and dismissed the Revenue's appeal.

Issue 4: Allowance of Deduction for a Specific AOP Member:
A specific issue arose regarding the allowance of deduction under section 80IB(10) for a particular member of the AOP based on the agreement terms. The Tribunal examined whether the share of a specific member in the AOP was eligible for the deduction under section 80IB(10) as per the agreement terms. The Tribunal held that the power under section 263 was incorrectly invoked in this context.

Issue 5: Correct Invocation of Power under Section 263:
The correct invocation of power under section 263 was a critical issue in the case. The Tribunal assessed whether the Commissioner of Income Tax had erred in invoking section 263 based on the revenue allocation and deduction under section 80IB(10). It was concluded that the power under section 263 was wrongly exercised, and the assessment order was not erroneous or prejudicial to the Revenue's interest.

Issue 6: Merger of Orders and Jurisdiction under Section 263:
The final issue involved the merger of orders and jurisdiction under section 263. The Tribunal determined that the order passed by the Commissioner of Income Tax under section 263 was unwarranted as the assessment order had merged with the order of the First Appellate Authority. The Tribunal quashed the Commissioner's order and dismissed the appeal, stating that it did not raise any substantial question of law.

In conclusion, the High Court of Bombay upheld the Tribunal's decision, emphasizing the correct interpretation of the AOP agreement, the eligibility for deduction under section 80IB(10), and the incorrect invocation of power under section 263. The judgment clarified the legal principles governing revenue allocation, deduction claims, and the jurisdiction of tax authorities in such matters.