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2013 (9) TMI 190 - AT - Income TaxRevision u/s 263 - an order erroneous and prejudicial to revenue Held that - The CIT has to be satisfied of twin conditions viz., (i) the order sought to be revised is erroneous; and (ii) it is prejudicial to the interest of revenue. If one of this is absent if the order of the ITO is erroneous but is not prejudicial to the interest of revenue or if it is not erroneous but is prejudicial to the interest of revenue recourse cannot be had to section 263(1) of the Income-tax Act. There can be no doubt that the provisions cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. However, an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase prejudicial to the interest of revenue is not an expression of art and it is not defined in the Income-tax Act. It should be understood in ordinary meaning, it is of wide import and it is not confined to laws of tax. In the present case, Assessing Officer has also not discussed the allowability or disallowance of deductions under sections 32(1)(iia) and deduction u/s 80IB . The order of the Assessing Officer is a non-speaking one and is silent on these aspects. Thus, it can be said that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of revenue - CIT s action in exercising jurisdiction u/s. 263 of the Act is upheld Decided against the Assessee. Maintenance of separate books of accounts for deduction u/s 80IB - Allowability of deduction u/s. 80IB(7B) of the Income Tax Act with reference to profits and gains of convention centre Held that - Assessee had maintained books of account in regular course of business which had been accepted by the Department and no defect has been pointed out in the books of account containing the details of income and expenditure which are supported by vouchers and other documents. The method of accounting followed by the assessee has also been accepted by the Department. The assessee submitted that it has produced books of account and vouchers for verification before the Assessing Officer and after verifying the same the Assessing Officer granted deduction u/s. 80IB(7B). Even if separate books of account are not maintained for convention centre, if the assessee is in a position to show the true and correct profit from the convention centre, the deduction u/s. 80IB is to be granted. Nonmaintenance of separate books of account for convention centre itself cannot be a reason for out rightly rejecting the claim u/s. 80IB of the Act. - Decided in favor of assessee. In the present case it is an admitted fact that the assessee has produced the information for availing deduction u/s. 80IB(7B) in Form No. 10CCB duly certified by the chartered accountant and also there is no allegation that the assessee is not entitled for deduction under this section. Further, the assessee has been granted with this deduction in earlier assessment years which is not disturbed by any process of law and it is continued to be granted in subsequent assessment years. Even if separate books of account are not maintained, in that event also the deduction u/s. 80IB(7B) could be granted to the assessee in proportion to the turnover to profit of convention hall and the Tribunal/courts consistently holding that when it is not possible to accurately determine the deduction u/s. 80IB, the profit has to be apportioned on the basis of turnover of each unit - Assessee s claim u/s. 80IB(7B) cannot be denied by the CIT Decided in favor of Assessee. Valuation of stock - Valuation report submitted before bank for taking loan can not be basis for addition in the value of stock - Addition of Rs. 15.06 crores, the difference between the value reflected in the value of land in the valuation report and value mentioned in the books of account with reference to closing stock Held that - Assessee do maintain stock account and the stocks were recorded in the books of accounts maintained by the assessee is not disputed by the Department In view absence of maintenance of day to day stock account of land and acceptance of the same by the Assessing Officer cannot be found fault by the CIT. It is further seen that the valuation report given to the bank is for availing the loan from bank. Another important aspect is that the Assessing Officer accepted the profit declared by the assessee on the basis of books of accounts. Before making addition on account of excess stock of land, the CIT has to bring material on record to establish the fact that the assessee was actually having physical stock as per the valuation given to the bank. Merely relying upon the valuation report, it cannot be presumed that the assessee has made unexplained investment when there is no denying of the fact that a common practice of inflating the stock is followed in the business circle for availing loan from bank Decided in favor of Assessee.
Issues Involved:
1. Additional depreciation on plant and machinery. 2. Deduction under section 80IB(7B) of the Income Tax Act. 3. Valuation of closing stock. Detailed Analysis: 1. Additional Depreciation on Plant and Machinery: The CIT found that the Assessing Officer (AO) allowed additional depreciation on plant and machinery amounting to Rs. 71,95,250, which was erroneous as the assessee was not engaged in the business of manufacture or production of an article or thing. The assessee conceded to the disallowance of additional depreciation during the proceedings before the CIT. The Tribunal upheld the CIT's decision on this issue, noting that the assessee had not challenged the disallowance before the CIT and thus could not reargue it before the Tribunal. 2. Deduction under Section 80IB(7B) of the Income Tax Act: The CIT directed the AO to withdraw the deduction under section 80IB(7B) amounting to Rs. 1,51,71,548, as the assessee had not maintained separate books of account for the convention centre. The Tribunal found that the assessee had maintained regular books of account, which were accepted by the Department, and no defects were pointed out. The Tribunal held that non-maintenance of separate books of account for the convention centre cannot be a reason for outright rejection of the claim under section 80IB(7B), especially when the assessee could show true and correct profit from the convention centre. The Tribunal concluded that the assessee's claim under section 80IB(7B) should be allowed, as the conditions laid down in the section and relevant rules were satisfied. 3. Valuation of Closing Stock: The CIT revalued the closing stock at Rs. 31,83,61,242 based on a valuation report furnished to the banks, as opposed to Rs. 16.77 crores disclosed by the assessee. The Tribunal noted that the valuation report given to the bank was for availing loans and was inflated to match the amount of loan availed. The Tribunal emphasized that the valuation report alone cannot be a basis for addition, and the Department did not dispute the correctness of the stock account maintained by the assessee. The Tribunal held that the CIT could not rely solely on the valuation report to presume unexplained investment in stock and that the valuation of closing stock should be based on the method of accounting regularly employed by the assessee, as per section 145A of the Income Tax Act. The Tribunal directed the cancellation of the addition of Rs. 15.06 crores made by the AO based on the CIT's directions. Conclusion: The Tribunal partly allowed ITA No. 1254/Hyd/2011, confirming the CIT's order on the disallowance of additional depreciation but overturning the CIT's directions regarding the deduction under section 80IB(7B) and the valuation of closing stock. ITA No. 1872/Hyd/2012 was dismissed as infructuous since the consequential order passed by the AO was rendered moot by the Tribunal's decision in ITA No. 1254/Hyd/2011. The AO was directed to pass a fresh order in conformity with the Tribunal's directions.
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