2014 (3) TMI 761 - HC - Income Tax

Power of the Commissioner to invoke jurisdiction u/s 263 of the Act Allowability of claim of deduction u/s 80IB of the Act - Whether the circumstances warrant initiation of proceedings under section 263 of the Act by the Commissioner or not Held that - The available material was incomplete according to him - This is the subjective satisfaction of the assessing authority - Though not satisfied with the material available, he still proceeded to opine that the claim of deduction has to be allowed - This is nothing short of non-application of mind - Most of the discussion and reasoning was in respect of a particular opinion of the officer but in the last sentence in the assessment order gives go by to that opinion - This is nothing short of erroneous view taken by the authority - there was no subjective satisfaction but still he proceeded to pass the order - Having proceeded to pass such erroneous order with incomplete material particulars, giving deduction as claimed by the assessee is prejudicial to the interest of the revenue. The subjective satisfaction is with regard to material particulars - How one gets these material particulars, could be from the documents produced by the assessee and if a doubt or suspicion arises in the mind of the assessing officer he has to make an enquiry and secure material which dispels his doubt or suspicion - The doubt expressed is a genuine one because of two reasons, that is, A type flat is just 3 sq.ft.less than maximum measurement of the apartment and same family members had purchased adjacent apartments. Unless this is factually verified by spot inspection, it remains a doubt - When deductions are allowed under Section 80-1B several checks and balances are indicated - In order to give concession or benefit of deduction, the officer has to take into account whether there is any attempt to evade payment of tax - This is the primary duty of the department - In order to discharge this duty, the subjective satisfaction of the officer is very relevant thus, the Tribunal was not justified in setting aside the orders of the Commissioner and the Commissioner was justified in initiating proceedings u/s 263 of the Act Decided in favour of Revenue.

Summary

Issues Involved:
1. Validity and jurisdiction of the suo motu revisional order of the Commissioner.
2. Legality of the Commissioner's order based on the Assessing Officer's failure to make necessary enquiries under Section 80-IB.
3. Tribunal's consideration of the case on merits and its decision to set aside the Commissioner's order.

Detailed Analysis:

1. Validity and Jurisdiction of the Suo Motu Revisional Order of the Commissioner:
The core issue was whether the Commissioner's suo motu revisional order was legally valid and within jurisdiction, and whether the Tribunal was right in setting aside this order. The Commissioner initiated suo motu proceedings under Section 263 of the Income Tax Act, asserting that the Assessing Officer (AO) had not conducted adequate enquiries regarding the allowability of deductions claimed by the assessee under Section 80-IB(10). The High Court concluded that the Commissioner was justified in initiating proceedings under Section 263, as the AO's failure to make necessary enquiries rendered the assessment order erroneous and prejudicial to the interests of the revenue.

2. Legality of the Commissioner's Order Based on the Assessing Officer's Failure to Make Necessary Enquiries:
The Commissioner found that the AO had not sufficiently verified the eligibility of the assessee's projects for deductions under Section 80-IB(10). Specifically, there were doubts about the built-up area of the apartments and potential violations of the approved construction plan. The AO had deputed inspectors to conduct a spot inspection, but they could not complete a detailed inspection as many apartments were locked. Despite this, the AO allowed the deductions, which the Commissioner deemed erroneous. The High Court upheld the Commissioner's view, stating that the AO's decision to allow the deductions without resolving these doubts constituted non-application of mind and was prejudicial to the revenue.

3. Tribunal's Consideration of the Case on Merits and Its Decision to Set Aside the Commissioner's Order:
The Tribunal had quashed the Commissioner's order, concluding that there was no justification for the Commissioner to invoke jurisdiction under Section 263. The High Court, however, found that the Tribunal erred in its judgment. The Tribunal should not have delved into the merits of the case, as the Commissioner's order was confined to jurisdictional issues without touching upon the merits. The High Court emphasized that the AO's subjective satisfaction regarding the material particulars was crucial. Since the AO had expressed doubts about the factual situation but still proceeded to allow the deductions, this amounted to non-application of mind. Therefore, the High Court ruled that the Commissioner was justified in initiating proceedings under Section 263, and the Tribunal's decision to set aside the Commissioner's order was incorrect.

Conclusion:
The High Court allowed the appeals, affirming that the Commissioner was justified in initiating suo motu revisional proceedings under Section 263 due to the AO's failure to conduct necessary enquiries, which rendered the assessment order erroneous and prejudicial to the interests of the revenue. The Tribunal's decision to set aside the Commissioner's order was deemed unjustified.