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TMI Blog2024 (9) TMI 1627X X X X Extracts X X X X X X X X Extracts X X X X ..... sponding depreciation claimed. The auditor, had certified these claims, confirming their accuracy and compliance with the provisions of the Act. The purpose of the Tax Audit under section 44AB of the Act is to ensure that financial records and claims are thoroughly verified by an independent professional, providing a reliable basis for the AO to rely upon. If the AO is expected to recheck all the details already certified by the auditor, especially when there are no specific qualifications or adverse remarks in the audit report, it would undermine the very purpose of the audit under section 44AB - AO appropriately relied on the certified audit report, as intended by law, and no further verification was necessary in absence of any discrepancies noted by the auditor. AO s acceptance of the depreciation claim was fully justified and in line with the principles underlying the audit provisions. For invoking jurisdiction u/s 263, it must be established that the assessment order is both erroneous and prejudicial to the interest of the revenue. In the present case, the AO s order was based on a conscious examination of the records, and no substantive errors were pointed out by the PCIT tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh assessment. Facts of the Case: 2. The assessee filed its return of income for AY 2018-19 declaring NIL income after claiming deductions under section 80IA of the Act. The return was processed u/s 143(1) of the Act making addition of Rs. 42,06,604/-. The copy of intimation u/s 143(1) of the Act was not received by the assessee so the AO provided the same to the assessee. The AO completed the assessment under Section 143(3) r.w.s. 144B of the Act, making additions of Rs. 42,06,604/- as per order under section 143(1) of the Act and Rs. 3,15,44,000/- under section 40(a)(i) of the Act on account of non-deduction of TDS on foreign commission. The gross total income was computed at Rs. 12,04,36,098/-, against which the assessee claimed a deduction of Rs. 12,04,36,098/- under section 80IA of the Act, resulting in NIL taxable income. 2.1. Subsequently, the PCIT invoked the revisionary jurisdiction under Section 263, holding that the assessment order was erroneous and prejudicial to the interest of the revenue due to two specific issues:- i. That, the alleged failure of the AO to disallow unpaid leave salary under section 43B of the Act, and ii. That, the AO's failure to verify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision. The PCIT held that the assessment order met both criteria, as the AO s failure to make proper inquiries had led to potential loss of tax revenue. 4. Aggrieved by the order of PCIT, the assessee is in appeal before us with the following grounds of appeal: 1. The learned CIT has erred in law and on facts in passing an order u/s 263, setting aside the assessment order passed by the learned AO u/s 143(3), r.w.s. 144B of the Act, with direction to make fresh assessment, which was neither erroneous nor prejudicial to the interest of revenue. The conditions of section 263 having not been satisfied the learned CIT has no jurisdiction to invoke provisions of section 263. It be so held now and the order passed by CIT under section 263 be cancelled. 2. The learned CIT has erred in law and on facts in not accepting the detail submissions dated 08.01.2024 and 20.02.2024, where from it was evident that even if there is disallowance of Rs. 46,16,406/- for non-payment of leave salary, the consequential tax effect shall be Rs. NIL, due to deduction available for set off u/s 80IA of the Act. The learned CIT ought not to have passed an order cancelling the said order of AO with direction to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us, the Authorised Representative (AR) of the assessee, explained that the assessment was completed after detailed scrutiny, and the AO made specific additions of Rs. 42,06,604/- and Rs. 3,15,44,000/- in the returned income. The AR further stated that the AO after completing the assessment also issued notice u/s 154 of the Act on 22- 09-2022, to rectify the mistake in allowing claim of Rs. 17,43,55,892/- u/s 80- IA of the Act and passed order u/s 154 of the Act on 27-01-2023 after satisfying himself that there was no mistake in claiming the deduction u/s 80IA. It was submitted by the assessee that the claim is restricted to Rs. 12,04,36,098/- i.e. to the extent of total income assessed by the AO. The AR also submitted that the assessee has balance claim of Rs. 5,39,19,734/- u/s 80IA of the Act. The AR further stated that the CIT(A), NFAC Delhi, deleted the disallowance of Rs. 3,15,44,000/- made under section 40(a)(i) of the Act. As a result, the gross total income would be reduced to Rs. 8,88,92,098/- post-appeal effect resulting into increase in balance to that extent. 6. The AR stated that the PCIT directed a fresh assessment on the ground that the unpaid leave salary of Rs. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le income, making the PCIT s order to reassess futile and without prejudice to the revenue. The AR relied on CBDT Circular No. 37/2016, which acknowledges that disallowances such as those under sections 43B and 40(a)(ia) enhance eligible business profits, and the enhanced profits qualify for deductions under Chapter VI-A. The said circular referred judgements of Hon ble High Courts in case of ITO vs. Keval Construction (Gujarat High Court, Tax Appeal No. 443 of 2012) and CIT vs. Sunil Vishwambarnath Tiwari (Bombay High Court IT Appeal No. 2 of 2011), where it was held that disallowances that enhance business profits are eligible for corresponding deductions under section 80IA of the Act. The AR also placed reliance on recent decision of Co-ordinate Bench in DCIT vs. Kota Baran Tollway Pvt. Ltd. (ITA No: 2025/AHD/2018 dated 30.04.2024) followed the principle that enhanced profits due to disallowances are eligible for higher deductions under section 80IA of the Act. 7. The Departmental Representative (DR) relied on the order of PCIT and stated that the case was selected for complete scrutiny and AO was required to verify all the details which her has failed and therefore the PCIT was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the principles underlying the audit provisions. 8.3. For invoking jurisdiction under Section 263, it must be established that the assessment order is both erroneous and prejudicial to the interest of the revenue. In the present case, the AO s order was based on a conscious examination of the records, and no substantive errors were pointed out by the PCIT that would indicate any failure in the verification process. The assessee s argument that even if the unpaid leave salary and additional depreciation were disallowed, the resulting tax effect would be NIL due to the large available deduction under Section 80IA is relevant. The gross total income before deduction under Section 80IA was Rs. 12,04,36,098/-, and the available deduction under Section 80IA was Rs. 17,43,55,892/-. Thus, the taxable income would still remain NIL, demonstrating that there is no prejudice to the revenue. The assessee cited CBDT Circular No. 37/2016, which clarified that disallowances enhancing business profits qualify for deductions under Chapter VI A, including Section 80IA. Judicial precedents, such as, ITO vs. Keval Construction (Gujarat High Court) and CIT vs. Sunil Vishwambarnath Tiwari (Bombay High ..... X X X X Extracts X X X X X X X X Extracts X X X X
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