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2023 (12) TMI 1028 - AT - Income TaxRevision u/s 263 by CIT - excess claim of deduction u/s 80P - assessee stated to have earned income by way of interest from deposits made in Nationalized Banks - PCIT reveals that on scrutiny of the records of the assessee he noted that the assessee being a Co-operative Society engaged in providing credit facility to its members for agriculture it had been allowed excess claim of deduction u/s 80P of the Act in the assessment framed u/s 143(3) - PCIT noted that while the assessee had earned both exempt income and taxable income, the expenses had not been properly apportioned between two sets of income - HELD THAT - We find merit in the contention of assessee that the basic premise of PCIT for arriving at finding of excessive claim of deduction u/s 80P(2)(a)(i) by the assessee, rested on assumption of incorrect and unverifiable facts. It is not clear to us as to how the Ld. PCIT arrived at the finding that the income of the assessee eligible to deduction u/s 80P(2)(a)(i) was only Rs. 36 Crore and not Rs. 41 Crore as claimed and allowed to the assessee. While the assessee claim of deduction of Rs. 41 Crores of profit u/s 80P(2)(a)(i) emanated from the records including the financial statement, the tax audit report and computation of income filed by the assessee, all documents filed before us in Paper book, and was also examined during assessment proceedings by issuance of notice u/s 142(1) of the Act and replies filed by the assessee placed before us,the basis of the Ld. PCIT for holding that the assessee was eligible to only Rs. 36 Crores deduction under Section 80P(2)(a)(i) of the Act is not clear nor does it seen to arise from the records before us. Therefore, we hold that the very basis for assumption of jurisdiction to revise assessment order fails on account of the error in the assessment order having been found by the Ld. PCIT on the basis of incorrect facts. Records do not support the finding of the PCIT that the assessee had claimed excessive deduction u/s 80P(2)(a)(i) - And as long as the finding of error of PCIT is based on facts which palpably do not emanate from records, it is immaterial whether this fact is pointed out for the first time before us. In view of the same there is no error in the assessment border vis a vis quantum of allowance of deduction to the assessee u/s 80P - The revisionary order passed by the Ld. PCIT, therefore, needs to be set aside for having failed to fulfill one of the twin conditions , of the assessment order being both erroneous and prejudicial to the interest of the Revenue, necessary for invoking revisionary jurisdiction , as laid down in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT this ground alone. Subsequently, after noting that as per records the assessee was eligible to lesser claim of deduction under Section 80P(2)(a)(i) of the Act, the Ld.PCIT has gone on a different tangent after receiving the assessee s reply to the show cause notice. We find from the reply filed by the assessee during revisionary proceedings that the assessee stated to have earned income by way of interest from deposits made in Nationalized Banks. Picking this information he held that the assessee was not eligible to claim deduction on this interest income as per the provisions of law and having been allowed deduction on the same, the assessment order was in error causing prejudice to the Revenue. We are not in agreement with the Ld. DR. Even if the Ld. PCIT had noted the fact of assessee having claimed deduction on an ineligible income from the assesses statement of facts before him, it was his bounden duty to confront the assessee that it was ineligible in law for deduction u/s 80P of the Act, before holding the assessment order being erroneous on having allowed the assessee s claim of deduction under Section 80P(2)(a)(i) of the Act on the same. In the absence of any show cause notice being given to the assessee, the finding of error by the Ld. PCIT on account of the same is not sustainable in law and the revisionary order passed, therefore, is liable to be set aside for the same reason also. PCIT is unclear and is not sure as what exactly is the error in the assessment order. He begins by noting error on account of excess claim of deduction under Section 80P(2)(a)(i) due to incorrect apportionment of expenditure to exempt income while assuming jurisdiction u/s 263 but goes on to hold the error to pertain to allowance of claim of deduction u/s 80 P to income which was otherwise not eligible in law to such claim , and then concludes by reverting back to his original finding of error on account of excessive claim of deduction on account of incorrect appropriation of expenses. The powers of revision being exercisable on a categorically finding of error in assessment order causing prejudice to the Revenue, this uncertainty in the finding of the error by Ld. PCIT renders the revisional order completely unsustainable in law. Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Excess claim of deduction under Section 80P. 3. Incorrect apportionment of expenses between exempt and taxable income. 4. Lack of concrete findings and inquiry by the CIT. Summary: Jurisdiction under Section 263: The assessee challenged the jurisdiction assumed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, arguing that the assessment order was not erroneous nor prejudicial to the interest of the revenue. The Tribunal found that the PCIT's assumption of jurisdiction was based on incorrect and unverifiable facts, specifically the figure of Rs. 51.04 Crore of expenses, which did not emanate from the records. Excess Claim of Deduction under Section 80P: The PCIT noted that the assessee, a co-operative society, had claimed a deduction of Rs. 41.31 Crores under Section 80P, while it was eligible for only Rs. 36.73 Crores, resulting in an excess claim of Rs. 4.57 Crores. However, the Tribunal found that the PCIT's calculation was based on incorrect facts and that the assessee's claim of Rs. 41.31 Crores was supported by the records, including financial statements and tax audit reports. Incorrect Apportionment of Expenses: The PCIT argued that the expenses were not properly apportioned between exempt and taxable income, leading to an excessive deduction under Section 80P. The Tribunal, however, noted that the PCIT did not provide a clear basis for this apportionment and that the records did not support the PCIT's findings. Lack of Concrete Findings and Inquiry by the CIT: The Tribunal criticized the PCIT for not conducting a proper inquiry or investigation and for not providing a show cause notice to the assessee regarding the ineligibility of interest income from deposits in Nationalized Banks for deduction under Section 80P. The Tribunal held that the PCIT's order was unsustainable in law due to the lack of a clear and categorical finding of error in the assessment order. Conclusion: The Tribunal set aside the PCIT's order passed under Section 263 of the Income Tax Act, as it failed to fulfill the twin conditions of the assessment order being both erroneous and prejudicial to the interest of the revenue. The appeal preferred by the assessee was allowed.
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