2017 (11) TMI 643 - HC - Income Tax

Revision u/s 263 - Claim for deduction made under Section 80IB - SCN issued by the DIT - variance between what is stated in the SCN, and that, which was noted in the order of DIT - Held that - While, there was, clearly, a variance between what is stated in the SCN, and that, which was noted in the order of DIT, that by itself would not render the order passed under Section 263 of the 1961 Act illegal, as long as at the stage of hearing, the Assessee was given due opportunity to rebut the concerns and/or the material that the DIT had in his possession, based on which, he had reached the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue. Therefore, this question is answered in favour of the Revenue and against the Assessee. Though no SCN was issued with regard to the admissibility of the deduction claimed by the Assessee under Section 80IB(9), opportunity, in that behalf, ought to have been given by the DIT at the stage of conducting the hearing and prior to passing an order under Section 263 of the 1961 Act. Accordingly, question No.2 is also answered in favour of the Revenue, and against the Assessee. Nothing on record to suggest that at any stage, which is at the show cause stage or at the time, when, hearing was held before the DIT, adequate opportunity was given to the Assessee to rebut the concerns and/or underlying material, if any, that the DIT, had in his possession. - Decided in favour of assessee. Tribunal could not have come to a conclusion that the Assessee had not worked out the deductions in accordance with the provisions of Section 80IB(13), without the DIT giving adequate opportunity to the Assessee. As noted by the Tribunal and also by us, the relevant material required for claiming deduction under Section 80IB had been placed on record by the Assessee before the Assessing Officer. The only reason that the DIT and the Tribunal came to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue, was, that, according to them, the Assessing Officer had not applied his mind to the materials placed on record by the Assessee. In so far as the Assessee was concerned, it claimed that it had worked out the deduction in accordance with the provisions of Section 80IB(13) of the 1961 Act, which, in turn, referred to sub-section (7) to (12) of Section 80IA of the very same Act.- Decided in favour of assessee. The Tribunal was, clearly, in error in making a reference to the provisions of Section 80IB(5) of the 1961 Act, which had no relevance in the facts and circumstances obtaining in the instant case. The position was no different in respect of Section 292B of the 1961 Act.- Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Director of Income Tax (DIT) under Section 263 of the Income Tax Act, 1961.
2. Adequacy of the Show Cause Notice (SCN) issued by the DIT.
3. Opportunity given to the Assessee to rebut concerns and underlying material.
4. Applicability of Section 80IB(5) and Section 292B of the Income Tax Act, 1961.
5. Whether the Tribunal and DIT correctly concluded that the Assessing Officer had not applied his mind to the materials placed on record by the Assessee.

Issue-wise Detailed Analysis:

1. Jurisdiction of the DIT under Section 263 of the Income Tax Act, 1961:
The power of the DIT under Section 263 is supervisory in nature, allowing the Commissioner to revise an assessment order if it is erroneous and prejudicial to the interest of the Revenue. The judgment emphasized that both conditions must be met for the DIT to exercise this power. The court held that the order of the DIT was impregnated with both factual and legal errors, such as incorrect statements regarding the Assessee's income and misunderstanding the requirement of maintaining separate accounts for claiming deductions under Section 80IB.

2. Adequacy of the Show Cause Notice (SCN) issued by the DIT:
The SCN issued by the DIT only stated that the deduction claimed under Section 80IB(9) was not computed in accordance with Section 80IB(13) read with Section 80IA(5). The court found that the SCN did not articulate the specific concerns or objections that the DIT had, which were later included in the final order. The court held that there was a variance between the SCN and the final order, which was not addressed adequately by the DIT.

3. Opportunity given to the Assessee to rebut concerns and underlying material:
The court held that the Assessee was not given adequate opportunity to rebut the concerns and material that the DIT had in his possession. The DIT failed to confront the Assessee with specific concerns and underlying material during the hearing. The court emphasized that the principles of natural justice require that the Assessee be given a fair opportunity to respond to the concerns and material relied upon by the DIT.

4. Applicability of Section 80IB(5) and Section 292B of the Income Tax Act, 1961:
The court found that Section 80IB(5) was not relevant for claiming deductions under Section 80IB(9). The Tribunal's reliance on Section 80IB(5) and the assertion that any defects could be cured under Section 292B were deemed superfluous and erroneous. The court held that the Tribunal erred in making these references, as they had no relevance to the facts of the case.

5. Whether the Tribunal and DIT correctly concluded that the Assessing Officer had not applied his mind to the materials placed on record by the Assessee:
The court held that the Assessing Officer had indeed applied his mind to the materials provided by the Assessee, which included audit reports, certificates, and detailed computations. The DIT's conclusion that the Assessing Officer had not examined the claim properly was found to be incorrect. The court noted that the DIT and the Tribunal failed to appreciate the material and explanations provided by the Assessee.

Conclusion:
The court set aside the orders of the Tribunal and the DIT, remanding the matter back to the DIT for a fresh order. The DIT was instructed to articulate his concerns/objections in writing, confront the Assessee with the material relied upon, and provide a personal hearing if requested. The appeal was disposed of with no order as to costs.

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