2020 (8) TMI 477 - HC - Income Tax

Revision u/s 263 - eligibility of the assessee to claim deduction u/s 80IB(10) - Whether the Tribunal was correct in holding that the order under Section 263 of the Act is not sustainable in view of insertion of Section 13(8) of the Act? - HELD THAT - Order passed by the AO is erroneous and is prejudicial to the interest of the revenue. The Tribunal by placing reliance on the decision in the case of HERO AUTO LIMITED 2012 (3) TMI 332 - DELHI HIGH COURT has held that lack of enquiry regarding eligibility of assessee for deduction under Section 80IB(10) cannot be upheld. It is pertinent to mention here that in the aforesaid decision, from perusal of paragraph 3, it is evident that there was not discussion in the order of CIT (Appeals) as to how and in what manner the enquiry was lacking and what was the fault and default committed by the Assessing Officer. The distinction between lack of enquiry and inadequate enquiry was also noted. Therefore, the Tribunal grossly erred in law in applying the aforesaid decision to the fact situation of the case and ought to have appreciated that the instant case was a case of lack of enquiry and not inadequate enquiry with regard to claim of the assessee with regard to deduction under Section 80IB(10) of the Act. Tribunal has recorded the finding that the Assessing Officer should have examined the claim for deduction of the assessee in the light of Section 11 - Tribunal thereafter could not have proceeded to examine the matter on merits after setting aside the order under Section 263 of the Act with reference to Section 13(8) of the Act as the merits of the matter was not the subject matter of the appeal before the Tribunal. Substantial questions of law framed by a bench of this court are answered in favour of the revenue and against the assessee.

Summary

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act.
2. Application of Section 13(8) of the Income Tax Act.
3. Eligibility of the assessee to claim deduction under Section 80IB(10) of the Income Tax Act.
4. Examination of the merits of the matter by the Tribunal.

Issue-wise Detailed Analysis:

1. Validity of the order under Section 263 of the Income Tax Act:
The appeal was filed by the revenue challenging the Tribunal's decision that invalidated the order under Section 263 of the Income Tax Act. The Director of Income Tax (Exemption) had issued a show cause notice and eventually quashed the Assessing Officer's order, directing a fresh assessment. The Tribunal, however, held that the invocation of Section 263 was not justified due to lack of enquiry by the Assessing Officer. The High Court scrutinized Section 263, noting that for its application, the order must be erroneous and prejudicial to the revenue's interests. The Supreme Court's interpretation in 'MALABAR INDUSTRIAL CO. LTD.' was referenced, emphasizing that not every loss in revenue is prejudicial unless it stems from an erroneous order. The High Court concluded that the Tribunal erred in its application of law, noting the case involved a lack of enquiry, not just inadequate enquiry.

2. Application of Section 13(8) of the Income Tax Act:
The Tribunal had applied Section 13(8) of the Act, which was incorporated with effect from 01.04.2009, to assert that the income from developing housing projects would form part of the total income, making the application of income for charitable purposes irrelevant. The High Court found that the Tribunal overstepped its scope by addressing the merits of Section 13(8) when the primary issue was the validity of the Section 263 order. The Tribunal's examination on this aspect was deemed inappropriate as it was not the subject matter of the appeal.

3. Eligibility of the assessee to claim deduction under Section 80IB(10) of the Income Tax Act:
The Tribunal had set aside the Director's order, suggesting that the Assessing Officer should have examined the claim for deduction under Section 80IB(10) in light of whether the income was applied for charitable purposes. The High Court noted that the Assessing Officer had failed to conduct any enquiry regarding the deduction claim, which justified the Director's invocation of Section 263. The Tribunal's reliance on 'HERO AUTO LIMITED' was misplaced as that case dealt with inadequate enquiry, whereas the present case involved a complete lack of enquiry.

4. Examination of the merits of the matter by the Tribunal:
The High Court criticized the Tribunal for delving into the merits of the matter, specifically the application of Section 13(8), after acknowledging the lack of enquiry by the Assessing Officer. The Tribunal's role was to address the procedural validity of the Section 263 order, not to adjudicate on the substantive merits of the deduction claim under Section 80IB(10). The High Court quashed the Tribunal's order and directed the Assessing Officer to reassess the claim in accordance with the law, without expressing any opinion on the merits of the deduction claim.

Conclusion:
The High Court concluded that the Tribunal erred in law by setting aside the Section 263 order and addressing the merits of the case. It upheld the Director's decision to invoke Section 263 due to the lack of enquiry by the Assessing Officer, and directed a fresh assessment of the deduction claim under Section 80IB(10) by the Assessing Officer. The appeal was disposed of with these directions.