2010 (6) TMI 629 - AT - Income Tax

Tribunal upholds decision on deduction errors, remits 80-IC issue for review, allows partial appeal.

The Tribunal upheld the CIT's decision to disallow the deduction under section 80-IB due to the AO's error. The issue of deduction under section 80-IC was ... Deduction under s. 80-IC of the Act - CIT noted that the claim was made for the first time in the financial year 2004-05 as the said unit had commenced production in the year itself. The AO had allowed the claim of deduction under s. 80-IB of the Act. The CIT observed that the deduction under s. 80-IB of the Act was not allowable to the unit commencing manufacturing/production or articles or things after 31st March, 2004. The CIT also noted that the audit report in Form No. 10CCB was not filed along with the return of income – The assessee claims to have filed the report in connection with claim of deduction under s. 80-IC and audit report, pursuant to the letter issued by AO, after the passing of the assessment order, but prior to issue of show-cause notice under s. 263 of the Act. - Held that:- plea of the assessee of its reply to the show-cause notice issued under s. 263 of the Act has not been addressed by the CIT. The CIT has failed to address the issue of documents being available on 'record', matter is remitted back to the file of CIT. Depreciation on vehicles - addition of Rs. 40,000 lump sum on various expenses claimed on vehicles - similar disallowance is merited out of the depreciation claimed on the vehicles – Held that:- once the AO on consideration of the facts had made an addition of Rs. 40,000 out of various expenses claimed on vehicle and there is no merit in invoking the jurisdiction under s. 263 of the Act for making further disallowance on account of depreciation on such vehicles, addition deleted, ground of appeal raised by the assessee are allowed, appeal of the assessee is partly allowed Issues Involved:1. Exercise of revisionary powers under section 263 of the IT Act by the CIT.2. Claim of deduction under section 80-IB versus section 80-IC of the IT Act.3. Non-filing of the audit report in Form No. 10CCB.4. Disallowance of depreciation on vehicles.Detailed Analysis:1. Exercise of Revisionary Powers under Section 263:The appeal by the assessee is against the CIT's order, which exercised revisionary powers under section 263 of the IT Act. The CIT noted that the AO had allowed the deduction under section 80-IB without proper verification and application of mind, making the assessment order erroneous and prejudicial to the interest of the Revenue. The CIT observed that the deduction under section 80-IB was not allowable for units commencing production after 31st March 2004. The CIT also noted that the audit report in Form No. 10CCB was not filed with the return of income or during the assessment proceedings.2. Claim of Deduction under Section 80-IB versus Section 80-IC:The assessee argued that the deduction was claimed under section 80-IC for the Parwanoo unit, and the mention of section 80-IB was a typographical error. The assessee contended that all necessary documents, including the audit report, were submitted with the return of income. The CIT, however, found that the AO accepted the claim without verifying its allowability and without the mandatory audit report. The CIT disallowed the deduction under section 80-IB and enhanced the income by Rs. 1,31,748.3. Non-filing of the Audit Report in Form No. 10CCB:The CIT noted that the audit report in Form No. 10CCB was a condition precedent for the grant of special deduction under sections 80-IC/80-IB. The CIT found that the audit report was not filed with the return of income or during the assessment proceedings, making the AO's order erroneous and prejudicial to the interest of the Revenue. The CIT directed the AO to add back the deduction claimed under section 80-IB to the total income.4. Disallowance of Depreciation on Vehicles:The CIT observed that the AO had disallowed Rs. 40,000 out of various vehicle expenses but did not disallow depreciation on the same vehicles. The CIT held that expenses are allowed/disallowed under section 37, while depreciation on vehicles is disallowable under section 38. The CIT directed the AO to disallow depreciation on cars in the same proportion as the disallowed vehicle expenses.Conclusion:The Tribunal upheld the CIT's order regarding the disallowance of the deduction under section 80-IB, stating that the AO's order was without application of mind and prejudicial to the interest of the Revenue. However, the Tribunal remitted the issue of the deduction under section 80-IC back to the CIT for re-examination, considering the documents filed by the assessee. The Tribunal also deleted the addition made on account of depreciation on vehicles, finding no merit in the CIT's direction for further disallowance. The appeal of the assessee was partly allowed.