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2021 (7) TMI 684 - AT - Income TaxRevision u/s 263 - AO not examined total claim u/s 80IC - HELD THAT - There is nothing on the record to say that this component for the claim u/s 80IC which is the subject matter of revision is examined or enquired into by the Assessing Officer and took a plausible view, even if one infers that the Assessing Officer took a view, it can be said that mere taking of view of by the Assessing Officer without having subjected the claim to examination would not make a view of the AO. In the present case, the subject matter of the appeal before ld.CIT(A) is only in relation to claim for deduction u/s 80IC in respect of profits earned on inter-unit sales and not in respect of profits earned on the sales made to vendors directly from Parwanoo unit. Therefore, this issue was neither considered and decided by the ld.CIT(A) nor subject matter of appeal before ld.CIT(Appeals). Thus, the doctrine of merger have no application to the facts of the present case in view of the plain provisions of Clause (c) of Explanation 2 of sub-section (1) of 263 of the I.T. Act. In the light of the above legal position discussed on the facts of the present case, we are of the considered opinion that the ld.PCIT was justified in exercising the jurisdiction u/s 263 of the I.T. Act and we do not find any merit in the grounds of the appeal filed by the assessee.
Issues Involved:
1. Validity of the exercise of revisional jurisdiction by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act. 2. Examination of the claim for deduction under Section 80IC by the Assessing Officer (AO). 3. Applicability of the doctrine of merger concerning the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Issue-wise Detailed Analysis: 1. Validity of the exercise of revisional jurisdiction by the PCIT under Section 263 of the Income Tax Act: The PCIT exercised revisional jurisdiction under Section 263, deeming the assessment order passed by the AO as erroneous and prejudicial to the interest of revenue. The PCIT's contention was based on the AO's failure to examine the claim for deduction under Section 80IC concerning sales made directly to vendors from the Parwanoo Unit. The Tribunal upheld the PCIT's decision, citing the Supreme Court's ruling in Malbar Industrial Co. Ltd. Vs. CIT, which established that non-enquiry by the AO before allowing a claim renders the order erroneous and prejudicial to the revenue. The Tribunal emphasized that the AO must investigate claims prudently, and failure to do so justifies the PCIT's revisional jurisdiction. 2. Examination of the claim for deduction under Section 80IC by the AO: The Tribunal found that the AO had not examined the claim for deduction under Section 80IC concerning profits earned from sales made directly to vendors from the Parwanoo Unit. The AO had only scrutinized the profits from inter-unit sales. The Tribunal noted that the AO's failure to examine the entire claim, including the profits from direct sales, warranted the PCIT's intervention. The Tribunal referred to various judgments, including CIT Vs. Ballarpur Industries Ltd., which held that inadequate or no inquiry by the AO renders the order erroneous. The Tribunal concluded that the AO's partial examination of the claim did not constitute a thorough verification, justifying the PCIT's revisional action. 3. Applicability of the doctrine of merger concerning the appeal before the CIT(A): The appellant argued that the assessment order had merged with the CIT(A)'s order, precluding the PCIT's revisional jurisdiction under Section 263. However, the Tribunal clarified that the appeal before the CIT(A) only concerned the claim for deduction under Section 80IC related to inter-unit sales, not the direct sales to vendors from the Parwanoo Unit. Since the issue of direct sales was neither considered nor decided by the CIT(A), the doctrine of merger did not apply. The Tribunal referenced Clause (c) of Explanation 2 to sub-section (1) of Section 263, affirming the PCIT's authority to revise the assessment order. Conclusion: The Tribunal dismissed the appeal, affirming the PCIT's exercise of revisional jurisdiction under Section 263. The Tribunal emphasized the necessity for the AO to conduct a comprehensive examination of claims and upheld the PCIT's decision to revise the assessment order due to the AO's failure to scrutinize the entire claim for deduction under Section 80IC. The Tribunal also clarified that the doctrine of merger did not apply in this case, as the issue of direct sales to vendors from the Parwanoo Unit was not part of the appeal before the CIT(A).
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