2016 (7) TMI 377 - AT - Income Tax

Revision u/s 263 - non eligible for grant of deduction under section 80IB(10)(c) - Held that - AO, though, not made elaborate discussion with regard to the issue associated with section 80IB(10) claim, but has gone through all the details. It is discernible from the queries raised by him and the explanation given by the assessee in various replies. It is also pertinent to observe that in the Asstt.Year 2009-10, under similar situation in the same project, the deduction has been upheld by the Tribunal. Considering all these aspects cumulatively, we are of the view that order passed under section 263 is not sustainable. - Decided in favour of assessee

Issues Involved:
1. Legality of action under section 263 of the Income Tax Act.
2. Validity of the assessee's claim for deduction under section 80IB of the Income Tax Act.
3. Adequacy of inquiry conducted by the Assessing Officer (AO) during the assessment proceedings.
4. Treatment of valuation of work-in-progress (WIP) and income from AEC/AUDA charges and student fees.

Detailed Analysis:

1. Legality of Action under Section 263:
The primary issue revolves around whether the Commissioner of Income Tax (CIT) erred in invoking section 263 of the Income Tax Act to cancel the assessment order and direct a fresh assessment. Section 263 empowers the CIT to revise any order passed by the AO if it is deemed erroneous and prejudicial to the interests of the revenue. The Tribunal noted that the CIT must record satisfaction that the order is erroneous and prejudicial to the revenue. The Tribunal also referenced the decision of the Hon'ble Delhi High Court in CIT vs. Sun Beam Auto, emphasizing the distinction between lack of inquiry and inadequate inquiry.

2. Validity of Assessee's Claim for Deduction under Section 80IB:
The assessee claimed a deduction under section 80IB for a housing project. The AO allowed this deduction based on the parity with the facts of Radhe Developers' case decided by the Gujarat High Court. The CIT, however, believed the AO had not properly verified the claim, particularly concerning the development agreement with Dharti Vikas Coop. Housing Society. The Tribunal found that the AO had indeed inquired into the details and was satisfied with the explanations provided by the assessee.

3. Adequacy of Inquiry by the AO:
The CIT argued that the AO did not issue a notice to Dharti Vikas Coop. Housing Society to verify the treatment of the amount received from the assessee. The Tribunal held that the AO had conducted adequate inquiries and obtained detailed explanations from the assessee, including a comparative analysis with the Radhe Developers' case. The Tribunal emphasized that the AO had exercised quasi-judicial power appropriately, and the CIT's dissatisfaction alone did not render the AO's order erroneous.

4. Valuation of Work-in-Progress (WIP) and Income from AEC/AUDA Charges and Student Fees:
The CIT raised concerns about the valuation of WIP, suggesting it was inflated to claim a higher deduction. The Tribunal noted that the closing WIP for the previous year was accepted, making it the opening WIP for the current year, and any inflation would reduce the current year's profit, not increase it. Regarding AEC/AUDA charges and student fees, the Tribunal found that the AO had reviewed the relevant details, and the assessee had provided satisfactory explanations, including that the student fees led to a loss and did not affect the 80IB claim.

Conclusion:
The Tribunal concluded that the AO had conducted sufficient inquiries and that the CIT's reasons for invoking section 263 were not substantiated. The Tribunal quashed the CIT's order under section 263 and restored the original assessment order, allowing the assessee's appeal.

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