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2019 (4) TMI 355 - AT - Income TaxRevision u/s 263 - allowing the claim of deduction u/s 80IC by AO - order erroneous or prejudial to interest of revenue - HELD THAT - from the perusal of the various show cause notice and order sheet entries as incorporated in the impugned order, we find that Assessing Officer has required the assessee to furnish details of various streams of revenue giving the details of manufacturing process and the modus operandi, details of purchases, details of various sundry creditors, justify the fall in net profit rate, justify the various expenses claimed in P&L account, asked the furnished the ledger and bills, vouchers bank statement, etc. In response to various proceedings which lasted for almost more than 22 months, if assessee had filed all the details, then it cannot be held that Assessing Officer has framed the assessment without any inquiry or examination of record. We have already observed above that the finding of the ld. Pr.CIT that these documents are not available on assessment record has been found to be incorrect. Even otherwise also, if assessee has explained and reply to each and every point raised in the show cause notice along with documents and reasons submitted before the AO then it was incumbent upon Pr. CIT, at least to examine those replies and records so as to prima facie come to a conclusion that such a reasoning given by the assessee is divorced from the facts and material on record which is not tenable. It is a well settled law that if CIT is of the view that Assessing Officer has not carried out proper inquiry or there is inadequate inquiry, then he must give and record a finding that the order of inquiry made is erroneous. This can happen only if some kind of inquiry is conducted by the PCIT and he is able to establish the error or mistake made by the AO. CIT himself had to undertake proper inquiry and give reason for coming to the conclusion that assessment order was erroneous and prejudicial to the interest of revenue. This has been further reiterated in the case of Pr. CIT vs. Modi care Ltd 2017 (9) TMI 1238 - DELHI HIGH COURT and CIT vs. Sun Beam Ltd. 2009 (9) TMI 633 - DELHI HIGH COURT DR as well as Pr.CIT has much harped upon Explanation 2, but the said explanation will only be applicable when the order of the Assessing Officer has been passed without making inquiry or verification which should have been made. Here the observation of the Pr.CIT that Assessing Officer has not carried out any inquiry because replies and certain issue which was raised by him are not there in record, has already held found to be incorrect. Once Assessing Officer has carried out detailed inquiry and verification of the documents and was satisfied with the net profit shown by the eligible unit as well as the nature of expenses incurred by eligible and non eligible units and examined the entire details, then without there being any discrepancy or defect found by the Ld. Pr.CIT, he cannot simply set aside the assessment for passing a fresh assessment order. Thus, under these facts and circumstances, we hold that the impugned order passed u/s.263 cannot be sustained and same is quashed. Thus assessment order passed by the Assessing Officer and the claim of deduction u/s.80IC is sustained and appeal of the assessee is allowed.
Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act. 2. Examination of the claim of deduction under Section 80IC. 3. Inquiry and verification conducted by the Assessing Officer (AO). 4. Application of Explanation 2 to Section 263. Detailed Analysis: 1. Validity of the Order Passed Under Section 263: The assessee challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, which cancelled the assessment order dated 17.02.2016. The Pr. CIT held that the assessment was erroneous and prejudicial to the interest of revenue. The main contention was that the AO did not conduct a proper inquiry into various aspects, including the high profit margins of the eligible unit and losses in non-eligible units. 2. Examination of the Claim of Deduction Under Section 80IC: The assessee claimed a deduction under Section 80IC for its Baddi unit, engaged in manufacturing Muesli. This unit had been claiming deductions since the Assessment Year (AY) 2008-09, with 100% deduction allowed until AY 2012-13, and 30% in AY 2013-14. The AO allowed this deduction during the scrutiny proceedings. The Pr. CIT questioned the high profit margins of the eligible unit and the losses in non-eligible units, suggesting that the AO failed to examine these discrepancies adequately. 3. Inquiry and Verification Conducted by the AO: The Pr. CIT issued a show-cause notice under Section 263, highlighting various concerns, including: - High profit in the eligible unit compared to losses in non-eligible units. - Significant turnover from a non-eligible unit operational only for two months. - Stock transfers from the eligible unit booked as sales to inflate profits. - Lack of inquiry into the correctness and genuineness of expenses and turnover. - Failure to invoke provisions of Section 80IA(10) read with Section 80IC(7). In response, the assessee provided detailed explanations and supporting documents, asserting that: - The net profit from the eligible unit was 33.73%, not 37.33%. - The non-eligible unit's turnover was incorrectly stated; the correct turnover was ?64.33 lakhs. - Stock transfers were legitimate and properly accounted for. - Separate books of accounts were maintained for each unit, and all transactions were disclosed in audit reports. - The AO conducted a thorough inquiry, spanning over 18/19 months, and examined voluminous documents and books of accounts. 4. Application of Explanation 2 to Section 263: The Pr. CIT concluded that the AO's assessment was erroneous due to a lack of proper inquiry, invoking Explanation 2 to Section 263. This explanation deems an order erroneous if it is passed without making inquiries or verification that should have been made. The assessee argued that the Pr. CIT did not consider the detailed submissions and documents provided, and the AO had indeed conducted a proper inquiry. Conclusion: The Tribunal found that the AO made proper inquiries and examined the relevant documents, contrary to the Pr. CIT's findings. The Pr. CIT's observations were based on incorrect assumptions and did not consider the detailed submissions and explanations provided by the assessee. The Tribunal held that the Pr. CIT could not simply set aside the assessment order without finding any specific discrepancies or defects. Consequently, the order passed under Section 263 was quashed, and the AO's assessment order allowing the deduction under Section 80IC was sustained. The appeal of the assessee was allowed.
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