2017 (10) TMI 1395 - AT - Income Tax

Revision u/s 263 - deduction u/s 80IB(11C) - Held that - Whether the construction of hospital was in accordance with the Regulations or Byelaws of the local authority and hospital should have atleast 100 beds for the patients. Another requirement was for the assessee to furnish the report of audit in the prescribed form along with return of income. Once all these conditions have been verified by the AO and the assessee has been found to have fulfilled the same then the order of AO having taken a view of allowing the deduction under section 80IB(11C) to the assessee cannot be said to be an erroneous order. Since the Assessing Officer has verified the claim of assessee and had found that all the conditions have been satisfied by the assessee then allowing the deduction claimed by the assessee under the said sub-section does not make the order prejudicial to the interest of Revenue. Accordingly we hold so. Thus in such circumstances the exercise of revisionary power by the Commissioner under section 263 of the Act does not survive. Commissioner has also erred in not looking at the claim of assessee that it had fulfilled all the conditions and merely because the land was in the name of the Director and construction was so completed in the name of Director and completion certificate was in the name of the Director but note regarding the same was also filed along with the Balance Sheet which was verified by the Assessing Officer. Hence it could not be said that there was erroneous assumption of facts by the Assessing Officer. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revision order passed under section 263 of the Income Tax Act, 1961.
2. Whether the Assessing Officer (AO) properly verified the conditions for deduction under section 80IB(11C) of the Act.
3. Whether the Commissioner of Income Tax (CIT) was justified in invoking section 263 for lack of proper verification by the AO.
4. Examination of the conditions under sections 80IB(1) and 80IB(2) in relation to section 80IB(11C).

Issue-wise Detailed Analysis:

1. Validity of the Revision Order Passed Under Section 263:
The appeal challenges the order of the Principal Commissioner of Income Tax (PCIT) invoking section 263 of the Income Tax Act, 1961, to set aside the assessment order passed under section 143(3) for the assessment year 2010-11. The assessee contends that the revision order is "bad in law" and should be declared null and void because the original assessment order was neither erroneous nor prejudicial to the interest of the revenue.

2. Verification of Conditions for Deduction Under Section 80IB(11C):
The assessee, engaged in running a hospital, claimed a deduction under section 80IB(11C) for which an Auditor Certificate in Form No.10CCBD was filed. The AO verified the compliance of all conditions stipulated under the section, including the hospital's location, construction period, bed capacity, and adherence to local regulations. The AO concluded that the assessee had complied with all conditions and allowed the deduction.

3. Justification for Invoking Section 263 by the CIT:
The CIT, upon verification, noted that the AO had not verified the basic conditions for allowing the deduction under section 80IB(11C), leading to an under-assessment of income. The CIT issued a show cause notice to the assessee, highlighting discrepancies such as the hospital being constructed on leasehold land in the name of the Director, the company's incorporation date, and the absence of documentary evidence for the purchase of beds. The CIT concluded that the AO's failure to perform necessary verification rendered the assessment order erroneous and prejudicial to the interest of the revenue.

4. Examination of Conditions Under Sections 80IB(1) and 80IB(2):
The CIT argued that the AO should have examined the conditions under sections 80IB(1) and 80IB(2) to determine the eligibility for deduction under section 80IB(11C). However, the Tribunal found this reference misplaced, as the assessee was not an industrial undertaking, and the provisions of section 80IB(2) were not applicable. The Tribunal noted that the AO had verified all relevant conditions under section 80IB(11C), including the hospital's construction period, bed capacity, and local authority compliance, and found the assessee eligible for the deduction.

Conclusion:
The Tribunal concluded that the AO had conducted a thorough verification of the conditions under section 80IB(11C) and allowed the deduction correctly. The CIT's invocation of section 263 was deemed invalid as it was based on an erroneous interpretation of the law and facts. The Tribunal held that the revision order passed by the CIT was invalid and bad in law, and the appeal of the assessee was allowed.

Order Pronounced:
The appeal of the assessee was allowed, and the order of the CIT under section 263 was quashed. The Tribunal emphasized that both limbs of section 263—erroneous and prejudicial to the interest of revenue—must be fulfilled for its invocation, which was not the case here. The AO's order was found to be neither erroneous nor prejudicial to the revenue's interest.