2017 (10) TMI 1635 - HC - Income Tax

Rectification of mistake - Deduction u/s 80IB be denied on non-fulfillment of condition contained in clause (iv) of Sub-section (2) of Section 80IB - scrutiny assessment concluded and certain expenses were added - HELD THAT - We have gone through the orders of the assessing officer as well as the Commissioner in the scrutiny assessment. We do not find any material from which it could be ascertained that it was a mistake apparent on the face of the record - Tribunal had rightly held that the question as to whether the assessee failed to satisfy the condition stipulated in Section 80IB sub-section (2) sub-clause (iv) was an issue which could be the subject of investigation but scrutiny assessment could not be further scrutinized invoking the jurisdiction for rectification u/s 154 of the Act to arrive at such a finding. We accept the revenue's contention that principles of res judicata does not apply in a tax proceeding but that is not the point on which we are rejecting the appeal. We do not think any substantial question of law is involved in this appeal. We concur with the Tribunal that Section 154 of the Act could not be invoked by the Assessing Officer in the facts of this case.

Summary

Issues:
Appeal against Income-tax Appellate Tribunal's order allowing deduction under Section 80IB of the Income-tax Act, 1961; Non-fulfillment of conditions under Section 80IB(2)(iv); Legality of Assessing Officer's order under Section 154 disallowing deduction; Tribunal's decision in favor of the assessee; Tax impact and justification for maintaining the appeal; Application of Section 154 for rectification; Res judicata principles in tax proceedings.

Analysis:
The High Court of Calcutta dealt with an appeal challenging the Income-tax Appellate Tribunal's decision allowing deduction under Section 80IB of the Income-tax Act, 1961. The assessee, a small manufacturing unit registered as a Small Scale Tiny Unit, claimed deduction under Section 80IB since its inception in the financial year 2001-02. The issue in question pertained to the assessment year 2004-05, where the Assessing Officer disallowed the deduction under Section 154 due to an audit objection regarding the number of workers employed. The Commissioner upheld the assessee's appeal, emphasizing compliance verification in the initial assessment year. The Tribunal also ruled in favor of the assessee, highlighting the debatable nature of withdrawing deductions granted in subsequent years under Section 154 and the need for detailed compliance verification only in the initial assessment year.

The Court observed that the Assessing Officer's decision under Section 154 lacked material to ascertain a mistake apparent on the face of the record. It was noted that while res judicata principles do not apply in tax proceedings, the issue of non-compliance with Section 80IB(2)(iv) could not be further scrutinized through Section 154. The Court concurred with the Tribunal that Section 154 could not be invoked in this case, dismissing the appeal and the stay petition. The decision highlighted the importance of thorough compliance verification in the initial assessment year and the limitations of rectification under Section 154 in tax matters.

The Court acknowledged the revenue's argument regarding the tax impact being below the threshold and the justification for maintaining the appeal based on audit objections. However, it emphasized the need for a substantive question of law to be involved in the appeal, which was found lacking in this case. The judgment underscored the Tribunal's authority in interpreting provisions like Section 80IB and the limitations on using Section 154 for rectification purposes in tax assessments. Ultimately, the appeal was dismissed, and no costs were awarded.