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2022 (12) TMI 1266 - AT - Income TaxRevision u/s 263 - CIT setting aside the assessment framed u/s 143(3) read with 153A of the Act in which the AO has not made any addition because there was no incriminating evidences found during the course of search - claim of deduction u/s 35(2AB) of the Act and also in respect of excess allowance of unabsorbed depreciation - HELD THAT - Undisputedly the instant year is an unabated assessment year and there was no incriminating documents/ materials found during search with respect to claim of deduction u/s 35(2AB) of the Act and also in respect of excess allowance of unabsorbed depreciation. As on date that in an unabated year the addition can only be made on the basis of incriminating material. Therefore having regards to the legal position, the AO framed the assessment u/s 143(3) r.w.s. 153A of the Act without making any addition in respect of claim u/s 35(2AB) of the Act or with regard to the unabsorbed depreciation in consonance with provisions of the Act as interpreted by various judicial forums discussed hereunder. The case of the assessee is squarely covered by the decision of Continental Warehousing Corporation (Nhava Sheva) Ltd. 2015 (5) TMI 656 - BOMBAY HIGH COURT and in the case of CIT vs. Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT wherein it has been held that in case of unabated assessment year on the date of search the addition can only be made on the basis of search material and not otherwise. Therefore the order passed by the AO u/s 143(3) r.w.s. 153A of the Act is neither erroneous nor prejudicial to the interest of the revenue and therefore jurisdiction invoked by the ld. PCIT as not in consonance with the provisions of section 263 - Before exercise of jurisdiction u/s263 of the Act the AO has to satisfy the twin conditions as provided in section 263 of the Act .i.e. the order purported to be revised has to erroneous as well as prejudicial to the interest of the revenue and even if first conditions is satisfied or vice versa , the jurisdiction is not available to the ld PCIT as has been held in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT - Accordingly, we quash the order passed u/s 263 of the Act by the Ld. PCIT. The appeal of the assessee is allowed on legal issue.
Issues Involved:
1. Jurisdiction exercised by the Ld. PCIT under Section 263 of the Income Tax Act. 2. Validity of the assessment framed under Section 143(3) read with Section 153A without incriminating material. 3. Approval under Section 153D and its impact on revisionary jurisdiction under Section 263. 4. Deduction claim under Section 35(2AB) and its verification. Detailed Analysis: 1. Jurisdiction Exercised by the Ld. PCIT under Section 263 of the Income Tax Act: The primary issue raised by the assessee was the invalid jurisdiction exercised by the Ld. PCIT under Section 263 of the Act. The Ld. PCIT observed that the AO allowed the claim of deduction under Section 35(2AB) without proper verification, rendering the assessment order erroneous and prejudicial to the revenue. The Tribunal noted that for the exercise of jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interest of the revenue. The Tribunal quashed the order passed under Section 263, citing that the AO's order was neither erroneous nor prejudicial to the interest of the revenue, especially in the absence of incriminating material. 2. Validity of the Assessment Framed under Section 143(3) read with Section 153A without Incriminating Material: The Tribunal examined whether the AO could make additions in an unabated assessment year without incriminating material found during the search. It was held that in an unabated assessment year, additions can only be made based on incriminating material found during the search. The Tribunal cited decisions from the Hon'ble Bombay High Court and the Hon'ble Delhi High Court, which supported the view that in the absence of such material, the AO's assessment cannot be considered erroneous or prejudicial to the revenue. 3. Approval under Section 153D and its Impact on Revisionary Jurisdiction under Section 263: The Tribunal addressed the issue of whether an assessment order passed with the approval of the Additional CIT under Section 153D can be revised without cancelling or revising the approval itself. It was held that the approval under Section 153D is a statutory requirement, and without revising this approval, the Ld. PCIT cannot exercise jurisdiction under Section 263. The Tribunal relied on multiple judicial pronouncements which established that the revisionary jurisdiction under Section 263 is invalid if the approval under Section 153D is not revised. 4. Deduction Claim under Section 35(2AB) and its Verification: The Tribunal considered the validity of the AO allowing the deduction under Section 35(2AB) based on the approval granted by the Department of Scientific and Industrial Research (DSIR). It was argued that once the research facility is approved by DSIR, the AO has no jurisdiction to question the deduction. The Tribunal agreed with this view, citing a decision from the Co-ordinate Bench of Kolkata, which held that the AO must allow the deduction if the research facility is approved by DSIR. The Tribunal quashed the order passed under Section 263, affirming that the AO's order was neither erroneous nor prejudicial to the revenue. Conclusion: The Tribunal allowed all the appeals of the assessee, quashing the orders passed under Section 263 by the Ld. PCIT. The Tribunal reiterated that the revisionary jurisdiction under Section 263 cannot be exercised without satisfying the twin conditions of the order being erroneous and prejudicial to the revenue, and without revising the statutory approval under Section 153D. The Tribunal also upheld the validity of deductions claimed under Section 35(2AB) based on DSIR approval.
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