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2022 (4) TMI 1596 - AT - Income TaxRevision u/s 263 - Disallowance u/ 10AA - as per CIT assessee has incorrectly filed claim of exemption u/s 10AA of the Act in an incorrect format which has been accepted by the Ld. AO - CIT observed that the assessee had incorrectly submitted form 56G (instead of form 56F) which is required for claiming exemption u/s. 10B - HELD THAT - It is a well accepted principle of law that beneficial provisions should be given a liberal construction and once the assessee has satisfied the conditions laid down for claiming deduction/exemption under the relevant beneficial provision the same should not be denied. We are of the view that exemption benefits u/s 10AA cannot be denied to the assessee on account of a procedural lapse committed by the Chartered Accountant of the assessee. We must always keep the object of the Act in view while interpreting the section. The legislative intention must be the foundation of the court s interpretation. Once an assessee falls within the ambit of a beneficial provision then the said provision should be liberally interpreted. Section 10AA of the Act is a beneficial provision aimed at encouraging exports of goods and services by setting up of industrial units in special economic zones. In our view benefit of section 10AA should not be denied on account of a procedural/ technical default by the assessee or his chartered accountant by invoking revisionary jurisdiction u/s 263 of the Act if otherwise the assessee is eligible to claim deduction under the said exemption provision. Whether there is sufficient compliance once assessee has filed the revised Form 56F in section 263 proceedings before Pr. CIT.? - CIT has initiated 263 proceeding only on account of an inadvertent error on the part of the chartered accountant of the assessee by filing form 56G instead of form 56F in support of claim of deduction u/s. 10AA of the Act. This error has also been rectified by the A.R. of the assessee during the course of 263 proceeding wherein revised form 56F for claiming deduction u/s. 10AA of the Act was produced before Pr. CIT during 263 proceeding. We are therefore of the view that there is sufficient compliance if the correct form 56F has been filed during the course of revisionary proceeding there is no material objective to be achieved by directing revision of the original assessment order once the procedural lapse for which revisionary proceedings has been initiated has been rectified during 263 proceedings. Whether once the Ld. AO has examined the claim u/s 10AA of the Act and has accepted the same on appreciation of documents placed on record can it be said that the twin conditions of section 263 of the Act viz. order passed is erroneous and prejudicial to the interests of revenue are satisfied? - As in the instant case though there may be a procedural breach but on the aspect of claim of deduction u/s 10AA the issue has been analyzed by the Ld. AO in detail during the assessment proceedings and relied granted accordingly. Even in the 263 proceedings the Ld. Pr. CIT has not challenged the assessee s eligibility to claim deduction u/s 10AA of the Act nor has he pointed out any error in the findings of the Ld. AO with regards to the assessee s claim u/s 10AA of the Act. The only contention of Ld. Pr. CIT is that the Ld. AO failed notice that claim of exemption u/s 10AA of the Act has been filed in an incorrect Form which the assessee revised during the course of revisionary proceedings. In our considered view in the instant facts the twin conditions of section 263 of the Act viz. order passed is erroneous and prejudicial to the interests of revenue are not satisfied in the instant facts. In our view Ld. Pr. CIT erred in law and in facts in invoking section 263 of the Act to revise the order of Ld. AO - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Procedural lapse in filing the correct form for claiming exemption under Section 10AA. 3. Examination and verification of the claim by the Assessing Officer (AO). 4. Compliance with conditions for claiming deduction under Section 10AA. 5. Adequacy of filing the correct form during revisionary proceedings. 6. Applicability of beneficial provisions and liberal interpretation. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The primary issue is whether the Principal Commissioner of Income Tax (Pr. CIT) had the jurisdiction to initiate proceedings under Section 263 of the Act. The assessee argued that the Pr. CIT erred in assuming jurisdiction under Section 263 on the grounds that the assessment order was erroneous and prejudicial to the interest of the revenue. The Pr. CIT believed that the AO failed to notice the procedural lapse and allowed the claim, which justified the initiation of Section 263 proceedings. 2. Procedural Lapse in Filing the Correct Form: The assessee was required to file Form 56F to claim exemption under Section 10AA but mistakenly filed Form 56G, which is for Section 10B. The Pr. CIT initiated proceedings under Section 263 to disallow the exemption claim due to this procedural error. The assessee contended that the error was a bona fide mistake by their Chartered Accountant and should not result in the denial of the exemption, especially since the correct form was later submitted during the revisionary proceedings. 3. Examination and Verification of the Claim by the AO: The Pr. CIT held that the AO did not properly verify the eligibility of the assessee for claiming the deduction under Section 10AA during the assessment proceedings. The AO's failure to notice the procedural lapse and to call for the correct declaration was seen as a violation of stipulated conditions, rendering the assessment order erroneous and prejudicial to the interest of the revenue. 4. Compliance with Conditions for Claiming Deduction under Section 10AA: The assessee argued that all conditions for claiming the deduction under Section 10AA were satisfied and that the procedural requirement of filing the audit report in the correct form was a minor error that should not affect the substantive claim. The Pr. CIT did not dispute the eligibility of the assessee to claim the deduction but focused on the procedural lapse. 5. Adequacy of Filing the Correct Form During Revisionary Proceedings: The Tribunal noted that the correct Form 56F was submitted during the Section 263 proceedings, and this should be considered sufficient compliance. The Tribunal cited various judicial precedents to support the view that procedural flaws should not lead to the denial of substantive benefits if the conditions for the exemption are otherwise fulfilled. 6. Applicability of Beneficial Provisions and Liberal Interpretation: The Tribunal emphasized that beneficial provisions, such as Section 10AA, should be liberally construed. The Supreme Court and various High Courts have held that once an assessee satisfies the conditions laid down for claiming deductions under beneficial provisions, these should not be denied due to procedural lapses. The Tribunal concluded that the Pr. CIT erred in invoking Section 263 to deny the exemption based on a procedural error, especially when the correct form was later submitted. Conclusion: The Tribunal held that the Pr. CIT erred in law and on facts in initiating proceedings under Section 263. The procedural lapse was rectified during the revisionary proceedings, and the AO had already examined the claim in detail during the original assessment. The twin conditions of Section 263—order being erroneous and prejudicial to the interests of the revenue—were not satisfied. Therefore, the appeal of the assessee was allowed, and the order under Section 263 was quashed.
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