2017 (12) TMI 1760 - AT - Income Tax

Revision u/s 263 - case of inadequate enquiries OR not? - said contract is 'works contract', not eligible for deduction u/s 80IA - HELD THAT - There is nothing on record except the suspicion of the Department that the assessing officer has not carried out adequate enquiries - issues have been enquired into replies have been placed on record nothing has been brought by the Department to show that the view taken by the assessing officer was incorrect on facts. The requisite agreements alongwith site plan Schedule etc. attached thereto were all available before the AO and before the Pr. CIT alongwith photographs etc. No effort to distinguish the Contract entered into with Himachal Pradesh Govt. in respect of Thural Project with the subsequent contracts entered into by the assessee with Himachal Pradesh Government in respect of Dehra Project or with the Uttrakhand Govt. in respect of Pauri and Rudraprayag Projects have been referred to in his order by the Pr. CIT or in his arguments by the ld. CIT-DR. Mere argument that the three Projects were different without any supporting fact cannot be given a judicial approval. Suspicion may be said to be sufficient for the purposes of issuance of Show Cause Notice but thereafter, the suspicion has to be backed by hard facts. Ultimately on the issue on which the order was passed setting aside the order admittedly was not the subject matter of the two show cause notices issued by the Pr. CIT Chandigarh and thus notwithstanding the settled legal position thereon even otherwise we find that in the facts of the present case on a reading of the assessment order itself it is demonstrated that the Assessing Officer has enquired into the said issue also. AO while passing the order proceeded to look into the claim of depreciation for the exempted and non-exempt units and thus the suspicion of the Pr. CIT, Chandigarh that the facts for considering the bifurcation of expenses between the exempted income and non-exempt income have not been looked into is without any justification and in the peculiar facts of the present case based entirely on suspicions. We find that there was no basis for the principal CIT-A to conclude that it is a case of inadequate enquiries. - Decided in favour of assessee. assessing officer has inquired into the issues the assessee has demonstrated the correctness of the claim having been allowed the revenue having failed to point out as to what is the error in the specific contracts considered by the Pr. CIT, Chandigarh namely the contract entered into with the Himachal Pradesh government in regard to the Dehra Project and the two specific contracts entered into with the Uttrakhand Government of Pauri and Rudraprayag Project. - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Mechanical exercise of power by the Principal Commissioner of Income Tax (Pr. CIT).
3. Judicial consistency and subsequent assessment years.
4. Show cause notice and final issues.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The assessee challenged the jurisdiction assumed by the Pr. CIT under Section 263, arguing that the Assessing Officer (AO) had scrutinized all details, made inquiries, and verified the material before allowing the claim. The Tribunal noted that the AO had indeed made necessary inquiries and the facts were available on record. The Pr. CIT had acknowledged that similar contracts had been allowed in previous years, and the ITAT had previously struck down similar exercises of power by the Pr. CIT in the 2011-12 assessment year. The Tribunal found that the AO had followed a consistent approach in allowing the claim after due inquiry, and there was no error pointed out by the Pr. CIT that was prejudicial to the interests of the Revenue.

2. Mechanical Exercise of Power by the Pr. CIT:
The Tribunal observed that the Pr. CIT's order was a result of a mechanical exercise of power, based on suspicions without specific reasons. The Pr. CIT had set aside the AO's order on an issue not mentioned in the show cause notices. The Tribunal emphasized that the AO had examined all documents and passed a speaking order after raising queries and receiving replies from the assessee. The Pr. CIT's reliance on suspicions without pointing to any specific error was deemed contrary to judicial precedent.

3. Judicial Consistency and Subsequent Assessment Years:
The assessee argued that the deduction under Section 80IA had been allowed by subsequent assessing officers after scrutiny. The Tribunal noted that the ITAT had previously considered similar contracts and held that they were not "works contracts" but infrastructure development contracts eligible for deduction under Section 80IA. The Pr. CIT had acknowledged this in the impugned order but still proceeded to set aside the AO's order without demonstrating that the new contracts were different. The Tribunal found that the AO had consistently applied the same view in subsequent years, and the Pr. CIT had not provided any new material to justify a different conclusion.

4. Show Cause Notice and Final Issues:
The Tribunal highlighted that the issues on which the Pr. CIT assumed jurisdiction under Section 263 were not mentioned in the show cause notices, which is bad in law. The assessee had provided detailed replies to the queries raised by the AO, and the AO had considered the contracts and allowed the claim after due inquiry. The Tribunal found that the Pr. CIT's conclusion that there was no inquiry on the issue was incorrect, as the AO had examined the contracts and made necessary inquiries. The Tribunal emphasized that the Pr. CIT's suspicion that the contracts were not considered by the AO was without basis, and the AO had passed the order after full application of mind.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT, holding that the AO had made adequate inquiries and passed a speaking order after due application of mind. The Tribunal found no basis for the Pr. CIT's conclusion that the AO's order was erroneous and prejudicial to the interests of the Revenue. The appeal of the assessee was allowed.