2021 (9) TMI 1258 - AT - Income Tax

Revision u/s 263 by CIT - eligibility for deduction in terms of section 80IB(11A) - case of the appellant was selected for scrutiny - as per CIT AO had failed to make necessary enquiry/verification of the issues referred to in paragraph 4 and 5 of the show cause notice - HELD THAT - The assessment record produced before us, clearly shows that the assessing officer and made various enquiries/ verification from the assessee, and the assessee gave the reply to the said enquiries/ verification during the assessment proceedings. AO asked various questions/ show cause notice/ verification in respect of alleged fall in GP. The perusal of the Performa of audit report dated 29th November 2013, clearly shows that the assessee has mentioned in the four Performa the initial year of the assessment year for which the deduction was claimed and also mentioned the date of commencement of the activities. Thus the finding of the Ld. PCIT that AO had not made enquiry with respect to the initial year of assessment for which deduction was claimed is factually incorrect as the assessing officer made sufficient enquiries. The assessee filed the detailed reply on 4thAugust 2016, explaining elaborately how the assessee satisfies the conditions, as required under section 80 IB - thus it is abundantly clear that the assessing officer while framing the assessment had made an extensive, elaborate and necessary enquiry with a view to find out whether the assessee fulfils the conditions mentioned in section 80IB or not. The reading of the notice and the reply and subsequent notices and replies clearly shows that the assessing Officer was satisfied that the assessee had fulfilled all the conditions necessary for claiming the deduction under section 80 IB. As sufficient, necessary enquiries were made by the assessing officer during the assessment proceedings, therefore the action on the part of the principle CIT cannot be countenanced and the invocation of jurisdiction under section 263 , was devoid of any merit and is liable to be set aside and annulled . As AO at the first instance was holding the view that no addition can be made based on either non-fulfilment of the Commissioner under section 80IB and thereafter he had turned around and proposed that additions are required to be made on account of non-fulfilment of the conditions of section 80 IB and non-verification of the GP ratio of the assessee. Similarly, If we believe the assessing officer, that the order section was given by the Commissioner income tax framing the assessment and making the additions again the assessee at the time of passing the assessment order, the Commissioner was holding a view and was also simultaneously discussing the matter with the assessing officer, however quite contrary to this he chooses to issue the show-cause notice based on the proposal given by the assessing officer and pass the order under section 263, thus substantially both the officers were having two views for deleting the additions in making the addition. The law is reasonably settled when two views are possible, then the proceedings under section 263 are required to be dropped and quashed.- Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the Principal Commissioner of Income Tax (Pr. CIT) exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961.
2. Whether the Assessing Officer (AO) made sufficient inquiries regarding the assessee's claim of deduction under section 80IB(11A).
3. Whether the AO adequately verified the fall in gross profit rate.
4. The applicability of Explanation 2 to section 263 of the Income-tax Act.
5. Whether the assessment order was passed under the direction of the Pr. CIT.

Issue-wise Detailed Analysis:

1. Validity of the Pr. CIT Exercising Revisionary Jurisdiction under Section 263:
The appeal was filed against the order dated 30.01.2019 by the Pr. CIT under section 263 for the assessment year 2013-14. The assessee contended that the order was against the facts of the case and untenable under the law. The Pr. CIT set aside the assessment order on the grounds that the AO failed to make necessary inquiries regarding the deduction under section 80IB(11A) and the fall in gross profit rate, making the assessment order erroneous and prejudicial to the interests of the Revenue.

2. Whether the AO Made Sufficient Inquiries Regarding the Assessee's Claim of Deduction under Section 80IB(11A):
The AO issued multiple notices and the assessee responded with detailed explanations and documents justifying the deduction under section 80IB(11A). The AO asked for a note on business activities, details of gross profit, and specific queries about the deduction claimed under Chapter VI-A. The assessee provided comprehensive replies, including an audit report in Form 10CCB, detailing the fulfillment of conditions under section 80IB(11A). The AO's extensive inquiries and the assessee's detailed responses indicated that the AO had thoroughly examined the claim before accepting it.

3. Whether the AO Adequately Verified the Fall in Gross Profit Rate:
The AO raised specific queries about the gross profit and net profit rates, and the assessee provided detailed explanations for the fall in gross profit rate, including a comparative analysis of expenses and item-wise gross profit rates. The AO's inquiries and the assessee's responses were documented, showing that the AO had considered the reasons for the fall in gross profit rate before finalizing the assessment.

4. The Applicability of Explanation 2 to Section 263 of the Income-tax Act:
The tribunal held that Explanation 2 to section 263, introduced by the Finance Act 2015 with effect from 1 June 2015, is prospective and does not apply to the assessment year 2013-14. The tribunal cited previous decisions, including Brahma Centre Development Private Limited and the Delhi High Court's affirmation, to support this view.

5. Whether the Assessment Order Was Passed under the Direction of the Pr. CIT:
The AO mentioned in the assessment order that the case was discussed with the Pr. CIT and the returned income was accepted as directed by the Pr. CIT. However, the Pr. CIT later issued a notice questioning this claim. The tribunal found no evidence in the assessment record of any draft assessment order or specific directions from the Pr. CIT before the assessment order was passed. The tribunal concluded that the assessment order was passed after sufficient inquiries by the AO, and the Pr. CIT's subsequent actions were inconsistent with the initial proceedings.

Conclusion:
The tribunal quashed the order passed under section 263, holding that the AO made sufficient inquiries regarding the deduction under section 80IB(11A) and the fall in gross profit rate. The tribunal also held that Explanation 2 to section 263 is prospective and does not apply to the assessment year in question. The assessment order was not erroneous or prejudicial to the interests of the Revenue, and the Pr. CIT's invocation of jurisdiction under section 263 was without merit.