2017 (9) TMI 1291 - AT - Income Tax

Revision u/s 263 - deduction u/s 80IA(4) - Held that - We are inclined to hold that the view taken by the AO, while granting deduction u/s 80IA(4) of the Act to the assessee, is reasonable and plausible which cannot be held as legally unsustainable and not in accordance with law and also being passed without application of mind. We, therefore, are of the considered opinion that the impugned notice and order of Ld. CIT is not valid and void ab initio. Since in the present case the order u/s 263 of the Act passed by the Principal CIT is based on the order for A.Y. 2009-10, the very essence of the said order has been decided by the Tribunal in assessee s own case in favour of the assessee, therefore, the order u/s 263 of the Act passed by the Pr. CIT is set aside. Appeal of the assessee is allowed.

Issues Involved:
1. Legality of the CIT's order setting aside the assessment to be made de novo.
2. Jurisdiction of CIT under section 263 of the Income Tax Act.
3. Precedent from ITAT in the appellant’s favor for the previous assessment year.
4. Difference in opinion between CIT and AO.
5. Eligibility for deduction under section 80IA(4).
6. Eligibility for deduction under section 80IA(4) as a developer.
7. Observations regarding eligibility of interest income deduction, netting of interest expense, deduction of depreciation, and reasonableness of payments under section 40A(2)(b).
8. Correctness of claims processed and allowed by AO.
9. CIT’s non-appreciation of facts and binding case law.
10. Unlawfulness of CIT’s order setting aside the assessment rather than giving a final finding.
11. Alternative eligibility for deduction under section 80IA(6).
12. Grounds of appeal being without prejudice to each other.

Detailed Analysis:

1. Legality of CIT's Order:
The assessee contended that the CIT erred in setting aside the assessment to be made de novo. The CIT's order was argued to be unlawful and beyond permissible jurisdiction under section 263 of the Income Tax Act, as the AO's order was neither erroneous nor prejudicial to the interest of the revenue.

2. Jurisdiction of CIT under Section 263:
The CIT invoked section 263, claiming the AO's order was erroneous and prejudicial to the revenue's interest. The assessee argued that the CIT's jurisdiction under section 263 was not applicable as the AO had already considered all relevant materials and explanations.

3. Precedent from ITAT:
The assessee referred to the ITAT's decision for AY 2009-10, where a similar order by the CIT under section 263 was quashed. The ITAT had held that the AO's view was reasonable and the CIT's order was void ab initio. This precedent was argued to apply to the current assessment year as well.

4. Difference in Opinion:
The assessee argued that a mere difference in opinion between the CIT and AO could not justify action under section 263. The provisions of section 263 do not permit the substitution of the CIT’s opinion for that of the AO, especially when the AO's view was based on the record and applicable precedents.

5. Eligibility for Deduction under Section 80IA(4):
The assessee claimed eligibility for deduction under section 80IA(4) as allowed by the AO. The CIT's invocation of section 263 was argued to be erroneous, as the AO had duly considered the material and precedents favoring the assessee.

6. Eligibility as a Developer:
The assessee contended that it was entitled to deduction under section 80IA(4) as a developer of infrastructure, even if it had not commenced operations. The claim was supported by precedents, including decisions in ACIT v. Bharat Udyog Ltd. and TRG Industries (P) Ltd. v. DCIT.

7. Observations on Interest Income, Depreciation, and Payments:
The CIT made erroneous observations regarding the eligibility of interest income deduction under section 80IA, netting of interest expense, deduction of depreciation, and reasonableness of payments to related parties under section 40A(2)(b). The assessee argued that these claims were correctly allowed by the AO after due consideration.

8. Correctness of Claims:
The assessee maintained that the claims processed and allowed by the AO were correct and there was no final finding by the CIT that these claims were incorrect. Therefore, setting aside the assessment to be made de novo was unlawful.

9. CIT’s Non-Appreciation of Facts and Law:
The CIT was argued to have based the order on erroneous views and non-appreciation of facts and binding case law, including the decision in K.P. Verghese v. ITO. The assessee's claim under section 80IA(4) was correctly allowed by the AO, as held by the ITAT in the previous year.

10. Unlawfulness of Setting Aside the Assessment:
The CIT's order setting aside the assessment to be made de novo, rather than giving a final finding, was argued to be unlawful. The ITAT had previously held this in the assessee’s case for AY 2009-10, following the decision of the Delhi High Court in Globus Infocom Ltd.

11. Alternative Eligibility under Section 80IA(6):
The assessee argued that, even if the CIT's view was considered, it was still eligible for deduction under section 80IA(6). Setting aside the assessment to be made de novo was therefore uncalled for and would be merely academic.

12. Grounds of Appeal:
The grounds of appeal were presented without prejudice to each other, indicating that the arguments were made independently and collectively.

Conclusion:
The ITAT held that the CIT's order under section 263 was based on the order for AY 2009-10, which had been decided in favor of the assessee by the ITAT. Therefore, the order under section 263 for the current assessment year was set aside, and the appeal of the assessee was allowed.

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