2013 (8) TMI 817 - AT - Income Tax

Tribunal upholds AO's decision on tax deduction eligibility, dismissing CIT's order.

The tribunal held that the Commissioner's order under Section 263 of the Income Tax Act was not justified as the Assessing Officer's decision was made ... Power of CIT to invoke section 263 for revision of assessment – Held that:- Whether under the facts and circumstances of the case, the assessee was eligible for deduction under Section 80IA or not is a controversial issue and on the issue there are two opinions and if the A.O. has taken one then the order of the A.O. cannot be cited to be erroneous order - When the A.O. is satisfied then it is not necessary to discuss such matter in the order. The assessee has established that the assessee has furnished relevant documents in reply to the queries raised by the assessee. The view taken by the A.O. is after considering the material and submission of the assessee. The order of the A.O. cannot be said to be erroneous. CIT merely want further verification or according to him adequate verification. Such verification does not cover to exercise the power under Section 263 of the Act - Order of A.O. is not erroneous and this basic condition for invoking section 263 of the Act has not been satisfied – Decided in favor of Assessee. Issues Involved:1. Legitimacy of the order passed under Section 263 of the Income Tax Act by the CIT.2. Eligibility of the assessee for deduction under Section 80IA(4) of the Income Tax Act.3. Examination of unsecured loans by the Assessing Officer (A.O.).Detailed Analysis:1. Legitimacy of the Order Passed Under Section 263 of the Income Tax Act by the CIT:The appeal was filed by the assessee against the order dated 18.03.2013 passed by the CIT under Section 263 of the Income Tax Act for the assessment year 2008-09. The CIT observed that the assessee's claim for deduction under Section 80IA was not allowable and that the A.O. did not verify the unsecured loan of Rs. 4,85,35,831/-. The CIT concluded that the assessee could not claim deduction under Section 80IA as it did not fulfill the conditions prescribed in the section. The CIT held that the assessee executed a works contract and did not make an investment in the eligible project.The assessee contended that the A.O. had examined the claim under Section 80IA and made a detailed assessment under Section 143(3). The assessee argued that the CIT was not empowered to exercise power under Section 263 as the A.O.'s order was not erroneous and prejudicial to the interest of the revenue. The assessee cited various judgments supporting their contention that the A.O.'s order was not erroneous.The tribunal noted that Section 263 allows the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the revenue. However, the tribunal emphasized that the power is not arbitrary and must be based on materials on record. The tribunal held that the A.O.'s order was not erroneous as it was made in accordance with law after examining the relevant records and making inquiries. Therefore, the tribunal set aside the CIT's order under Section 263.2. Eligibility of the Assessee for Deduction Under Section 80IA(4) of the Income Tax Act:The CIT found that the assessee was not eligible for deduction under Section 80IA(4) as it did not develop or operate and maintain the infrastructure facility by its own funds. The CIT referred to the explanation below sub-section (13) of Section 80IA, inserted by the Finance Act 2009 with retrospective effect from 01.04.2000, which clarified that an assessee executing a works contract is not entitled to deduction under Section 80IA(4).The assessee argued that the A.O. had examined the claim and found that the assessee fulfilled all conditions under Section 80IA(4). The A.O. had disallowed the deduction only on the interest income and a specific contract receipt, which was not eligible for deduction.The tribunal observed that the A.O. had issued a query letter and examined the assessee's claim for deduction under Section 80IA. The A.O. made a conscious decision after applying his mind to the facts and circumstances of the case. The tribunal held that the CIT's opinion that the assessee was not eligible for deduction under Section 80IA did not make the A.O.'s order erroneous. The tribunal found that the issue of eligibility for deduction under Section 80IA was a controversial issue with two possible views, and the A.O.'s view could not be termed erroneous.3. Examination of Unsecured Loans by the Assessing Officer (A.O.):The CIT also found that the A.O. did not verify the unsecured loans of Rs. 4,85,35,831/-. The assessee contended that the A.O. had issued a query letter asking for details of sundry creditors and unsecured loans, and the assessee had furnished the relevant details. The A.O. had examined the records and found the loans to be in accordance with law.The tribunal noted that the A.O. had made specific queries regarding unsecured loans, and the assessee had provided the necessary details. The A.O. was satisfied with the explanation and did not find any discrepancies. The tribunal held that the A.O.'s order could not be termed erroneous merely because the CIT felt that further verification was necessary. The tribunal concluded that the A.O.'s decision was based on a thorough examination of records and was not erroneous.Conclusion:The tribunal concluded that the order of the A.O. was not erroneous and the basic condition for invoking Section 263 was not satisfied. Therefore, the tribunal set aside the order of the CIT, allowing the assessee's appeal. The tribunal emphasized that the A.O. had made a conscious decision after examining the relevant records and that the CIT's opinion did not render the A.O.'s order erroneous.