2022 (3) TMI 1282 - AT - Income Tax

Revision u/s 263 - Eligibility for deduction u/s 80-IC - assessee was engaged in computer programming and Data processing - HELD THAT - Revisional Authority has interpreted the provisions of description of activity as mentioned in Sl. No. 13 of Part C of Schedule XIV of the Act in a manner as it was approached for interpretation of the scope of this provision in context to the nature of business activity. Which is not the purpose of vesting revisional powers under the Act. A favourable interpretation given by the ld. Assessing Officer in favour of the assessee based upon consideration of the response of assessee cannot justify use of revisional powers and justify another interpretation. It is settled position of law that for the purpose of exercising jurisdiction u./s. 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry. If the Revisional authority is of the view that the AO did not undertake any enquiry, it becomes incumbent on the Revisional Authority to conduct such enquiry. If the Revisional Authority does not conduct such basic exercise then the he is not justified in setting aside the order u/s. 263. However, it appears from the record that when the show cause notice u/s 263 of the Act was issued the Ld. Revisional Authority had then merely raised query seeking explanation from assessee to satisfy how the business of computer programming, data processing entitles benefit of deduction u/s 80- IC of the Act. In the case in hand the Ld Revisional Authority has done no homework on any aspect for which further enquiry was expected from the ld. AO but restricted to interpretation of relevant entry of nature of business activity and held that enquiry done by Ld. AO in complete scrutiny proceedings were not satisfactory. In fact specifically with regard to observations made in para 2.7, as reproduced above, it can be observed that in notice dated 8/7/16 the Ld. AO had specifically put a query no (xvii) Furnish details of amounts paid to related persons covered u/s 40A(2)(b) and furnish a comparative chart of the same shown in the Balance Sheet and in Audit Report. This certainly included admissibility of such expenses as per the provisions of the Act. To which the assessee in letter dated 5/8/16 had given details of payments which were considered by ld. AO while passing assessment order. Ld. Revisional authority has not enquired and discussed a word as to how any of these expenses were not admissible and concluded that the enquiry conducted by Ld. AO was not satisfactory. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility for deduction u/s 80-IC of the Income Tax Act.
2. Independent verification of sundry creditors.
3. Correct tax calculation under relevant sections.
4. Examination of admissibility of expenses u/s 40A(2)(b).
5. Exercise of revisional powers by the Principal Commissioner of Income Tax.

Issue 1: Eligibility for deduction u/s 80-IC of the Income Tax Act:
The assessee filed a return of income for assessment year 2014-15 claiming a deduction u/s 80-IC. The Income Tax Officer allowed the claim, but the Revisional Authority found the assessee ineligible for the deduction as they were engaged in computer programming and data processing, not covered under the provision. Additionally, discrepancies in production start dates and lack of segregation of transactions with a sister concern were noted. The Tribunal observed that the Revisional Authority's interpretation was incorrect, and the AO's favorable view based on the assessee's response should not warrant revisional powers.

Issue 2: Independent verification of sundry creditors:
The Revisional Authority highlighted the lack of independent verification of sundry creditors, discrepancies in production start dates, and insufficient examination of sales segregation. However, the Tribunal found that the Revisional Authority did not conduct any further inquiry or homework on these aspects, exceeding its jurisdiction under Section 263 of the Act.

Issue 3: Correct tax calculation under relevant sections:
The AO incorrectly charged tax under Section 115JC instead of Section 115JB of the Act. The Tribunal noted this error but focused on the Revisional Authority's overreach rather than the incorrect tax calculation.

Issue 4: Examination of admissibility of expenses u/s 40A(2)(b):
The AO only verified the mismatch in expenses related to Section 40A(2)(b) during assessment, failing to examine the admissibility of such expenses as required under complete scrutiny. The Revisional Authority did not conduct a proper inquiry on this matter, leading the Tribunal to conclude that the revision exceeded its jurisdiction.

Issue 5: Exercise of revisional powers by the Principal Commissioner of Income Tax:
The Tribunal emphasized that for invoking Section 263, there must be a minimal inquiry to establish the AO's order as erroneous and prejudicial to revenue. The Revisional Authority's lack of basic exercise or further inquiry before setting aside the order under Section 263 was deemed unjustified. The Tribunal cited relevant case law to support its decision.

In conclusion, the Tribunal allowed the appeal, setting aside the Revisional Authority's order dated 20.02.2019, based on the excessive exercise of revisional powers without proper inquiry or justification.

This detailed analysis covers the multiple issues involved in the legal judgment, providing a comprehensive overview of the Tribunal's findings and reasoning.