2019 (3) TMI 10 - AT - Income Tax

Revision u/s 263 - lack of inquiry - non filing and verification of statutory Form - Examination of eligibility of deduction u/s 10AAA - HELD THAT - A bare reading of the order of the Pr.CIT shows that the AO has failed to make inquiry into the relevant aspects concerning eligibility towards deduction u/s 10AA. The prescribed form required for the purposes of claim of deduction u/s 10AA was not available before the AO. AO did not make any inquiry in this regard. The form ultimately filed before the Pr.CIT was also found with reference to Section 10A in place of Section 10AA. The approval of the SEZ authority was also not placed before the AO nor asked for. The order of the AO u/s 143(3) clearly suffers from lack of inquiry and application of mind. AO has clearly failed to discharge its quasi-judicial functions while framing the assessment order. Such an assessment order is thus clearly erroneous and prejudicial to the interest of the Revenue. The reply received by the AO from SEZ authority in response to Section 133(6) was towards its competence to implement EOU Scheme and issue of letter of permission of STP Scheme in place of its issuance by BOA (Board of Approval). The reply was made to explain the delegation of powers to the Directors of STP Schemes and ratification of such approvals by the competent authority. The inquiry was made on only one limited aspect of the matter loosing sight of the other crucial aspects as noticed by the Pr.CIT. Thus, the usurpation of the jurisdiction u/s 263 and conclusion of the Pr.CIT that the assessment order passed is erroneous and prejudicial to the interest of the Revenue cannot be faulted. Certain documents furnished at a later stage after completion of the assessment, the correctness of which has not been tested, cannot be seen as sufficient compliance of deduction provision. - Decided against assessee.

Summary

Issues Involved:
1. Revision of assessment order under section 263 of the Income Tax Act, 1961 for AY 2012-13.
2. Eligibility of deduction under section 10AA of the Income Tax Act.
3. Compliance with prescribed conditions for claiming exemption.

Analysis:

Issue 1: Revision of assessment order under section 263
The appeal was filed against the revisional order of the Principal Commissioner of Income Tax-3, Ahmedabad, dated 22.03.2017, for the Assessment Year (AY) 2012-13. The Principal Commissioner set aside the assessment order passed by the Assessing Officer (AO) under section 143(3) for AY 2012-13, directing a re-assessment due to alleged errors in allowing deduction under section 10AA of the Act. The Principal Commissioner found the assessment order to be both erroneous and prejudicial to the interest of revenue due to non-compliance with prescribed conditions for deduction under section 10AA.

Issue 2: Eligibility of deduction under section 10AA
The assessee, a partnership firm engaged in software development and IT/ITES services, claimed exemption under section 10AA of the Act. However, it was found that the prescribed form No.56F and approval letter from the SEZ authority were not submitted before the AO, as required under section 10AA(8) of the Act. The Principal Commissioner held that the AO failed to verify the eligibility conditions for claiming the deduction under section 10AA, leading to an incorrect assessment of the total income of the assessee firm. The failure to provide the necessary documents and the incorrect application of the relevant sections rendered the assessment order erroneous and prejudicial to revenue.

Issue 3: Compliance with prescribed conditions for claiming exemption
The AO's lack of inquiry into the eligibility criteria for claiming deduction under section 10AA, coupled with the absence of the required form and approval letter, indicated a failure to fulfill statutory requirements. The reply received from the SEZ authority under section 133(6) was limited in scope and did not address all crucial aspects highlighted by the Principal Commissioner. The subsequent submission of documents after the assessment did not absolve the AO from the initial lack of verification and application of mind. The Tribunal upheld the Principal Commissioner's decision, emphasizing the need for proper verification and compliance with statutory conditions for claiming deductions.

In conclusion, the Tribunal dismissed the appeal, affirming the Principal Commissioner's decision to set aside the assessment order and direct a re-assessment to ensure proper verification of the eligibility for deduction under section 10AA. The judgment highlights the importance of adherence to prescribed conditions and thorough verification in assessing tax liabilities.