2018 (8) TMI 1628 - AT - Income Tax

Revision u/s 263 - deduction u/s 80IC claim - initial assessment year - erroneous assessment order and prejudicial to the interest of the Revenue - Held that - The initial year of the assessee for the purposes of deduction u/s 80IC is A.Y. 2010-11. Deduction was actually claimed for the first time in A.Y. 2011-12 and then in A.Y. 2012-13. Such a deduction was allowed by the Revenue albeit without making a regular assessment u/s 143(3). Since the stage for carrying out investigation for ascertaining if the unit was newly set up or reconstructed, was the initial year, in which the assessee s claim was not disputed, the assessment order for the year under consideration, accepting fulfillment of this eligibility condition, cannot be construed as erroneous. Going by the above interpretation of the provision, the AO was precluded from examining as to whether the assessee set up its new unit or it was a reorganization of the existing unit in the relevant year. The assessment order not discussing the examination of such a condition cannot be termed as erroneous. Once an assessment order cannot be held as erroneous, the CIT cannot exercise revisional power u/s 263, which requires a cumulative satisfaction of the twin conditions, viz., the erroneous assessment order and the same being prejudicial to the interest of the Revenue. We are confronted with a situation in which the assessment year under consideration is the third year of the claim of deduction u/s 80IC of the Act. Having allowed such deduction in the immediately preceding two assessment years, the AO was not supposed to re-examine the eligibility condition of the new unit having been set up in the current year as well. The impugned order setting aside such an assessment order on the ground that the AO did not examine such eligibility condition in the third year, which ought to have been examined in the initial year, cannot be sustained. - decided in favour of assessee.

Summary

Issues:
Assessment order passed without examining deduction u/s 80-IC eligibility.

Analysis:
The appeal pertains to an order by the CIT under section 263 of the Income-tax Act, 1961 for the assessment year 2013-14. The CIT found that the assessment order was passed without examining the claim of deduction u/s 80-IC of the Act. The assessee company was incorporated in 2004 and commenced operations in 2010. It was engaged in trading activity before setting up a manufacturing unit, which raised concerns about the eligibility for deduction u/s 80IC. The CIT set aside the assessment order for fresh examination by the AO, leading to the appeal by the assessee.

Upon review, it was observed that the assessment order did not discuss the eligibility of deduction u/s 80IC. The assessee first claimed the deduction in the AY 2011-12, followed by the AY 2012-13 and the AY under consideration, 2013-14. The CIT held the assessee ineligible for the deduction due to not setting up a new business, as evidenced by the documents filed. The judgment in DCIT vs. Ace Multi Axes Systems Ltd. highlighted the importance of meeting conditions for deductions each year, especially for industrial undertakings.

Comparing section 80IB with section 80-IC, it was noted that certain conditions need to be fulfilled annually, while others only in the initial year. In this case, as the eligibility condition was accepted in the initial year without dispute, the assessment order for the current year was not erroneous. The AO was not required to re-examine the eligibility condition for the new unit in subsequent years, as it was already established.

While section 263 has been expanded to cover orders passed without proper enquiry, in this scenario, where the deduction claim did not require additional investigation and was accepted by the AO, it did not fall under the purview of section 263. The CIT could not set aside the assessment order for not examining the eligibility condition in the third year, which should have been done in the initial year. Consequently, the appeal of the assessee was allowed, and the impugned order was set aside.