2019 (12) TMI 755 - AT - Income Tax

Revision u/s 263 - correctness of the claim of deduction u/s 80IB - case of the assessee was selected under CASS - whether the matter was selected for limited scrutiny or complete scrutiny ? - HELD THAT - We find that firstly, there is no mention in the notice u/s 143(2) that the matter has been selected for limited scrutiny, secondly, along with notice u/s 142(1), a detailed questionnaire was issued by the AO on various issues emanating from the return of income filed by the assessee and the same have been responded by the assessee company from time to time. Had the case of the assessee being selected for limited scrutiny as so claimed by the ld AR, the questionnaire/inquiry/investigation would have been limited and restricted to such issues as also apparent from Instruction No. 5/2016 dated 14th July, 2016 issued by CBDT, which has been relied upon by the ld. AR and binding on the AO. We are therefore unable to agree with the contentions of AR that merely because in the initial show cause notice issued by the Pr. CIT., it has been stated that the case was selected for limited scrutiny, it should be accepted that the case of the assessee was selected for limited scrutiny in view of material facts, as we have noticed above, as emanating from the records which shows clearly that the case of the assessee was selected for complete scrutiny. Assessee having participated in the assessment proceedings and not raising this objection before the AO during the assessment proceedings cannot be permitted to raise this contention in the revision proceedings. We are therefore of the considered view that the case of the assessee had been selected under complete scrutiny and not under limited scrutiny. In the assessment order passed u/s 143(3), AO has stated that the assessee firm is notified by the Central Govt. in the special economic zones for construction and development of low cost project of houses and is also entitled for claim of deduction under section 80IB for any 10 consecutive assessment years out of fifteen years beginning from the year in which special economic zone has been notified. This finding of the Assessing officer is clearly out of sync with the factual position and claim made by the assessee company in its return of income. This again shows clear non-application of mind and mechanical acceptance of the claim of deduction. It is a clear case of lack of enquiry on part of the AO in not examining the claim of deduction u/s 80IB of the Act and the order passed by the Assessing officer is clearly erroneous and prejudicial to the interest of the Revenue and where the CIT has directed further examination by the AO and the matter has been set aside to the file of the AO, we see no infirmity in the action of the Pr CIT by invoking her jurisdiction u/s 263 When the matter has not been examined at first place by the AO and there are specific directions given by the Pr. CIT to examine the same after providing reasonable opportunity to the assessee, we do not see any infirmity in the action of the Pr CIT. The assessee would be within its right to raise all its contention on merit before the Assessing Officer and the same are left open and not examined by us. We therefore upheld the order passed by the ld Pr CIT u/s 263 of the Act and the grounds of appeal taken by the assessee are dismissed.

Issues Involved:
1. Error in passing the order u/s 263 of the Income Tax Act, 1961.
2. Determination of whether the order passed by the Assessing Officer u/s 143(3) was erroneous and prejudicial to the interest of the revenue.
3. Assessing Officer’s allowance of deduction under section 80IB without examining the eligibility of the assessee firm.

Issue-wise Detailed Analysis:

1. Error in Passing the Order u/s 263 of the Income Tax Act, 1961:
The assessee contended that the Principal Commissioner of Income Tax (Pr. CIT) erred in passing the order u/s 263. The Pr. CIT reviewed the assessment records and found that the Assessing Officer (AO) allowed the deduction under section 80IB without proper inquiries or verification. The Pr. CIT held that the AO's order was erroneous and prejudicial to the interest of the revenue, thus invoking section 263. The tribunal upheld the Pr. CIT's action, stating that the AO's lack of inquiry into the claim of deduction under section 80IB rendered the assessment order erroneous and prejudicial to the revenue.

2. Determination of Whether the Order Passed by the Assessing Officer u/s 143(3) was Erroneous and Prejudicial to the Interest of the Revenue:
The Pr. CIT found that the AO accepted the assessee's claim for deduction under section 80IB without proper verification. The tribunal noted that the AO did not examine the claim during the assessment proceedings and accepted it without any queries. The tribunal agreed with the Pr. CIT that the AO's order was erroneous and prejudicial to the revenue due to the lack of inquiry and verification. The tribunal emphasized that the AO must conduct thorough investigations, especially when the case is selected for complete scrutiny.

3. Assessing Officer’s Allowance of Deduction under Section 80IB without Examining the Eligibility of the Assessee Firm:
The tribunal found that the AO allowed the deduction under section 80IB without examining the eligibility criteria. The Pr. CIT identified several discrepancies and non-compliance issues with the assessee's claim, such as:
- The non-filing of Form No. 10CCB electronically.
- The dates of project approval and completion did not align with the requirements.
- The assessee engaged in other activities, which was not permissible for claiming the deduction.
- The sale of two flats to one person and the built-up area exceeding the specified limit.

The tribunal upheld the Pr. CIT's findings and directed the AO to re-examine the claim of deduction under section 80IB with proper inquiries and verification.

Conclusion:
The tribunal dismissed the appeal of the assessee, upholding the Pr. CIT's order u/s 263. The tribunal emphasized the necessity of thorough inquiries and verification by the AO, especially in cases selected for complete scrutiny. The AO's failure to examine the claim of deduction under section 80IB rendered the assessment order erroneous and prejudicial to the revenue, justifying the invocation of section 263 by the Pr. CIT. The assessee was granted the opportunity to present its case during the reassessment proceedings.

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