2018 (8) TMI 267 - AT - Income Tax

Revision u/s 263 - deduction u/s. 80IB(11C) - Commissioner of Income Tax in this case has directed the AO to ascertain whether the referral income, income from running a nursing college, interest, rental income from medical store are to be allowed as deduction u/s.80IB(11C) - Held that - We note that u/s. 80IB(11C) of the Act, the deduction will be available in case of an undertaking which derives profits from business of operating and maintaining the hospital located anywhere in India. Now it is undisputed that the assessee is in the business of operating and maintaining the hospital. In this regard, we note that in the preceding assessment year, i.e., for assessment year 2011-12, under a scrutiny assessment u/s. 143(3), for all the above mentioned items of income noted, the assessee was granted deduction u/s. 80IB(11C). There is no mention anywhere that there is any change in the facts and circumstances of the case from that prevailing in the previous assessment year. In this regard, we note that the present assessment year 2012-13, is not the initial year for grant of deduction u/s. 80IB(11C). It is the settled proposition of law that this deduction cannot be disturbed if the initial year for scrutiny of said deduction is not disturbed. In this view of the matter, in our considered opinion, the Commissioner of Income Tax assumes jurisdiction u/s. 263, is not at all sustainable in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Justification of the order passed under section 263 holding that the assessment framed by the Assessing Officer (A.O.) is erroneous due to lack of inquiries.
3. Examination of whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of revenue.
4. Verification of the admissibility of the claim of deduction under section 80IB(11C) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Legality and Validity of the Order Passed Under Section 263:
The assessee contended that the order passed under section 263 is illegal, invalid, and bad in law. The Tribunal examined whether the Principal Commissioner of Income Tax (CIT) had the jurisdiction to revise the assessment order under section 263. It was noted that for the CIT to assume jurisdiction under section 263, the order must be both erroneous and prejudicial to the interest of the revenue. The Tribunal found that the CIT did not provide any cogent reason or material on record to substantiate that the order was erroneous. The Tribunal concluded that the CIT's assumption of jurisdiction under section 263 was not sustainable in law.

2. Justification of the Order Passed Under Section 263:
The CIT held that the assessment framed by the A.O. was erroneous because no verification was carried out regarding the huge amount of referral income, rental income from the medical store, interest income from fixed deposits, and income from running a nursing college. The Tribunal found that the A.O. had issued necessary questionnaires and summons under section 131, and the assessee had duly complied with these requirements. The Tribunal noted that the CIT's reasoning was based on an incorrect factual assumption and lacked application of mind. The Tribunal emphasized that the items of income questioned by the CIT were the same as in the previous assessment year, where the deduction under section 80IB(11C) was allowed.

3. Examination of Whether the Assessment Order Was Erroneous and Prejudicial:
The Tribunal analyzed whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of revenue. It was noted that the A.O. had examined the relevant records, issued summons, and inspected the business premises before allowing the deduction under section 80IB(11C). The Tribunal found that the A.O.'s order was based on due verification and examination of the claim. The Tribunal concluded that the order passed by the A.O. was not erroneous and prejudicial to the interest of revenue, and therefore, the exercise of power under section 263 by the CIT was not justified.

4. Verification of the Admissibility of the Claim of Deduction Under Section 80IB(11C):
The Tribunal examined whether the referral income, rental income, interest income, and income from running a nursing college were eligible for deduction under section 80IB(11C). It was noted that the assessee had set up a 100-bedded hospital and complied with the requisite conditions for the deduction. The Tribunal found that these incomes were inextricably linked to the business of operating and maintaining the hospital. The Tribunal referred to various case laws and concluded that the deduction under section 80IB(11C) was rightly allowed by the A.O. in the previous assessment year, and there was no change in facts and circumstances in the current year.

Conclusion:
The Tribunal quashed the order passed by the CIT under section 263 of the Income Tax Act, 1961, and allowed the appeal by the assessee. The Tribunal held that the CIT's assumption of jurisdiction under section 263 was not justified, as the assessment order was not erroneous and prejudicial to the interest of revenue. The Tribunal emphasized that the A.O. had duly verified and examined the claim of deduction under section 80IB(11C) before allowing it.