2024 (3) TMI 715 - AT - Income Tax

Revision u/s 263 - Basis of the revision proceeding based on the revenue audit objection - PCIT held that the assessee is not eligible to claim benefit u/s. 10AA and there is lack of enquiry by the ld. AO on the points upon which the assessment was reopened - HELD THAT - Claim was already allowed from the assessment year 2011-12 and the issue based on the survey has already been examined for all the years in the reassessment proceeding from the A.Y. 2010-2011 to 2017-2018. The entire basis of the proceeding u/s. 263 is based on the revenue audit objection. All the issues relevant for scrutiny assessment have been considered by the AO and all relevant enquiries were carried out and there is no fault found the PCIT in other years also and thus it is nothing but a change of opinion when the assessment pursuant to notice u/s. 148 has already been completed and there is no error or fault in the order passed by the assessee and the other issue raised in the reasons recorded for reopening wherein the assessee contented that Rental of plant machinery and building by M/s Pinkcity Colorstones Pvt. Ltd. was to its DTA Unit, i.e., Mahapura Unit and not to Sitapura SEZ Unit. Even the SEZ Rules do not permit to take Building / Plant Machinery on rent, without prior permission of the Development Commissioner and no such permission was taken. No statement by any Director or Employee that plant machinery and building have been given on rent by M/s Pinkcity Colorstones Pvt. Ltd. to Sitapura SEZ Unit. SEZ unit has constructed its own Building and purchased Plant Machinery. M/s Pinkcity Colorstones Pvt. Ltd. has not sold any plant machinery to Sitapura SEZ Unit. M/s Pinkcity Colorstones Pvt. Ltd. was not having strong profits but on the contrary was incurring regular losses. Employees of M/s Pinkcity Colorstones Pvt. Ltd. were absorbed by its DTA Unit, i.e., Mahapura Unit and not by Sitapura SEZ Unit. There is no bar that deduction u/s. 10AA will not be permitted if the management of two companies is similar. Items were not transferred from its Mahapura Unit to Sitapura SEZ unit, even otherwise, some raw-materials (gemstones) were sold which were used for manufacturing by SEZ unit, even otherwise there is no bar under the Act in order to claim deduction u/s. 10AA. The assessee already submitted that in the initial years casting machine were not available in Sitapura SEZ unit, hence, casted components were purchased from Pink City Color Stones Pvt Ltd. Thus the proceeding initiated u/s. 263 is merely based on the audit objection and there is no independent view of the ld. PCIT and even on merits when the claim has been accepted by re-opening the case after survey which has been completed there cannot be third inning to the revenue. To drive home to this contention drive strength from the finding of the Hon ble apex court in case of Parashuram Pottery Works Co. Ltd 1976 (11) TMI 1 - SUPREME COURT held we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. Thus we quash the order passed by the PCIT, Central, Jaipur. Decided in favour of assessee.

Summary

Issues Involved:
1. Condonation of Delay
2. Validity of Proceedings under Section 263
3. Merits of the Case

Summary:

1. Condonation of Delay:
The assessee filed an application for condonation of delay in filing the appeal, citing the COVID-19 pandemic as the reason. The Tribunal condoned the delay of 58 days, noting that the appeal was within the limitation period of 120 days as prescribed by the Act and the Supreme Court's order in Suo Moto Writ Petition (Civil) No.(s) 3/2020 dated 27.04.2021.

2. Validity of Proceedings under Section 263:
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263, asserting that the reassessment order passed by the Assessing Officer (AO) under Section 147 read with Section 143(3) was erroneous and prejudicial to the interest of the revenue. The PCIT argued that the AO failed to make necessary inquiries regarding the eligibility and allowability of deductions under Section 10AA of the Income Tax Act, 1961.

The Tribunal noted that the PCIT's action was primarily based on an audit objection and not on an independent examination of records. Citing various judicial precedents, including decisions from the Punjab & Haryana High Court and ITAT benches, the Tribunal held that proceedings under Section 263 cannot be initiated solely based on audit objections. The Tribunal emphasized that the PCIT must independently call for and examine records to determine if the AO's order is erroneous and prejudicial to the interest of the revenue.

3. Merits of the Case:
The Tribunal examined the merits of the case and found that the AO had conducted a detailed inquiry during the reassessment proceedings. The AO had considered the facts, past history, and relevant provisions of law before allowing the deduction under Section 10AA. The Tribunal noted that the AO had made proportionate disallowances based on the facts gathered during the survey and reassessment proceedings.

The Tribunal also highlighted the principle of consistency, noting that similar issues were examined and accepted in previous and subsequent assessment years without invoking Section 263. The Tribunal cited the Supreme Court's decision in Radha Soami Satsang v. CIT, which emphasized that a consistent view should be maintained unless there is a material change in facts.

Conclusion:
The Tribunal quashed the order passed by the PCIT under Section 263, holding that the proceedings were initiated based on audit objections and lacked independent examination. The Tribunal also found that the AO had conducted a proper inquiry during the reassessment proceedings, and there was no error in the AO's order that was prejudicial to the interest of the revenue. The appeal of the assessee was allowed.