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2015 (4) TMI 1323 - AT - Income TaxRevision u/s 263 by CIT - CIT directed the AO to withdraw deduction allowed u/s 80IB - CIT held that because of non filing of audit report the assessee was not entitled to claim the deduction,that the AO had not considered the issue of non filing of report - order of the AO was erroneous and prejudicial to revenue - HELD THAT - As basic issue as to how the order of the AO was erroneous and prejudicial to revenue has not been discussed by the CIT.It is also a fact,as stated earlier,that the issue of 80IB deduction was agitated by the assessee before the FAA.In these circumstances the CIT should not have issued notice 263 - CIT had totally ignored the fact that the AO had in earlier nine years allowed the claim made by the assessee.It is true that the rule of res judicata is not applicable to the income tax proceedings. Rule of consistency demands that without bringing distinguishing fact of the year under appeal with the facts of earlier years an opposite stand to the stand of earlier years should not be taken.The only difference noted is that in the year under appeal the assessee had not filed Audit Report before the A)O.But,the report was made available to the CIT and for disallowing the claim allowed in the earlier years he should have pin pointed the reasons for refusing it as to how same was different from the reports of earlier years. An issue deliberated upon by the FAA,partially or fully,is out of preview of proceedings to be initiated u/s.263 of the Act.In our opinion,the order of the CIT fails on touchstone of the merger doctrine and therefore is not valid.We hold that the assessees are required to file audit reports,but filing it before the CIT would not disentitle it from claiming the deduction.The purpose behind filing the report is that no fictitious claim is made and the activities of the assessees are certified by a professional. Deductions, including 80IB of the Act are considered to be benevolent provisions - Considering the purpose behind the legislation the Hon ble Courts have held that if the report is submitted at the time of active consideration of the claim it has to be taken as sufficient compliance of the provisions of the Act. - Decided in favour of assessee.
Issues Involved:
1. Validity of proceedings initiated under Section 263 of the Income Tax Act. 2. Non-submission of the Audit Report in Form 10CCB and its impact on the deduction claim under Section 80IB. Issue-wise Detailed Analysis: 1. Validity of proceedings initiated under Section 263 of the Income Tax Act: The assessee challenged the order of the Commissioner of Income Tax (CIT) under Section 263, arguing that the CIT erred in exercising his powers and directing the Assessing Officer (AO) to withdraw the deduction allowed under Section 80IB without jurisdiction. The assessee contended that the deduction was initially allowed by the AO after adjustments and was confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). Hence, the order of the AO merged with the order of the CIT(A), and the CIT could not revise the AO's order. The Tribunal highlighted that the revisional jurisdiction under Section 263 is limited to cases where the CIT is genuinely satisfied that the AO's order is erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that an erroneous assessment deviates from the law and is invalid, which is a jurisdictional defect. The Tribunal noted that the CIT must have tangible material to show that the AO's order was erroneous and prejudicial to the Revenue. The Tribunal found that the CIT did not provide adequate reasons for invoking Section 263 and failed to discuss how the AO's order was erroneous and prejudicial to the Revenue. Additionally, the Tribunal observed that the issue of the 80IB deduction was already adjudicated by the CIT(A), and the CIT should not have invoked his revisional jurisdiction regarding this issue. The Tribunal concluded that the CIT's order failed on the touchstone of the merger doctrine and was not valid. 2. Non-submission of the Audit Report in Form 10CCB and its impact on the deduction claim under Section 80IB: The CIT initiated revisionary proceedings under Section 263 on the grounds that the assessee did not furnish the mandatory Audit Report in Form 10CCB, which is required under Sections 80IB(13) and 80IA(7) of the Act. The CIT argued that the absence of the Audit Report made the AO's order erroneous and prejudicial to the Revenue. The assessee contended that the Audit Report was submitted during the appellate proceedings and that the deduction under Section 80IB could be allowed even if the report was filed before the completion of the assessment. The assessee relied on various judicial decisions to support this contention. The Tribunal referred to the judgment of the Gujarat High Court in the case of Zenith Processing Mills, which held that the requirement to furnish the Audit Report along with the return is directory and not mandatory. The Tribunal noted that the purpose of filing the report is to ensure that no fictitious claim is made and that the activities of the assessee are certified by a professional. The Tribunal emphasized that if the Audit Report is submitted at the time of active consideration of the claim, it should be considered sufficient compliance with the provisions of the Act. The Tribunal observed that the CIT did not point out any fault in the correctness of the Audit Report while passing the revisionary order. The CIT's emphasis was solely on the non-filing of the report before the AO. The Tribunal concluded that the assessee's filing of the report before the CIT should not disentitle it from claiming the deduction under Section 80IB. Conclusion: The Tribunal decided the effective ground of appeal in favor of the assessee, holding that the CIT was not justified in invoking the provisions of Section 263 and that the non-filing of the Audit Report before the AO did not disentitle the assessee from claiming the deduction under Section 80IB. The Tribunal annulled the revision proceedings initiated under Section 263 and restored the AO's order allowing the deduction.
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