2017 (12) TMI 1123 - AT - Income Tax

Tribunal overturns Tax Commissioner's decision on Section 263, upholds deduction for housing project

The Tribunal allowed the appeal, setting aside the Principal Commissioner of Income Tax's order under Section 263. The Assessing Officer's decision ... Revision u/s 263 - deduction under section 80IB(10) allowed by AO erroneously - Gram Panchayat Aadai of District Raigad competency for purpose of issuing approval and completion certificate for claiming deduction - Held that:- During the assessment proceeding, the AO issued notice under section 142(1) wherein he made the enquiry related with the project undertaken by the assessee with regard to area of project, date of approval of project from local authority, date of commencement, date of completion of the project and if the project is covered under section 80IB(10). The AO also made the enquiry related to size of residential unit, commercial area in project, nature of land holding, commencement certificate from appropriate authority under whose jurisdiction work was carried out along with copy of plan and revised plan, proof of land holding and total proposed construction along with return of income filed for AY 2011-12 and 2013-14 with balance-sheet, computation of income and Auditor’s report. The assessee in its reply furnished the information related with total area of the project which is 5940 sq. meter i.e. 1.5 Acres (approximately), date of approval of the project on 29.03.2007 and date of completion of project dated 05.03.2012. The assessee provided the details of built-up area, copy of land purchase agreements, commencement and completion certificate along with copy of plan, return of income for AY 2011-12 and 2012-13 and Auditor’s report. The AO after considering the reply and the documentary evidence furnished by assessee allowed the claim of assessee under section 80IB in the assessment order passed on 30.03.2015. The AO granted the deduction under section 80IB(10). In our view, the AO has made a sufficient enquiry before passing the assessment order. Co-ordinate Bench of Pune Tribunal in Hiraman Nivrutti Bhujbal vs. ITO [2014 (5) TMI 1137 - ITAT PUNE] held that concerned Gram Panchayat is a competent local authority for the purpose of issuing approval and completion certificate for claiming deduction under section 80IB(10) in respect of the profit from sale and eligible flats in the project. In our view, the AO has taken a legally possible view while allowing deduction under section 80IB(10). In our view, the provision of section 263 of the Act can be invoked if the twin condition prescribed under section 263 is fulfilled i.e the order is erroneous and prejudicial to the interest of Revenue. In the present case, the AO has taken legally permissible and possible view, thus, the order passed by AO is not erroneous. - Decided in favour of assessee. Issues Involved:1. Invocation of Section 263 by the Principal Commissioner of Income Tax (Pr. CIT).2. Examination and approval of the housing project by the Gram Panchayat.3. Eligibility for deduction under Section 80IB(10) of the Income Tax Act.4. Alleged errors and prejudices in the assessment order passed by the Assessing Officer (AO).5. Jurisdiction and authority of the Gram Panchayat to approve housing projects.6. Validity of the order passed under Section 263.Detailed Analysis:1. Invocation of Section 263 by the Principal Commissioner of Income Tax (Pr. CIT):The Pr. CIT invoked Section 263 of the Income Tax Act, setting aside the AO's order passed under Section 143(3) on the grounds that it was erroneous and prejudicial to the interest of the revenue. The Pr. CIT directed the AO to conduct detailed inquiries regarding the eligibility of the deduction claimed under Section 80IB(10).2. Examination and Approval of the Housing Project by the Gram Panchayat:The assessee argued that the AO had thoroughly examined the issue during the assessment proceedings, verifying that the Gram Panchayat Adai is a local authority competent to approve the housing project. The project met all the conditions and criteria prescribed under Section 80IB(10). The Pr. CIT accepted that the Gram Panchayat Adai was the authority to accord approval but still set aside the AO's order.3. Eligibility for Deduction under Section 80IB(10) of the Income Tax Act:The assessee claimed a deduction of Rs. 14,29,60,523 under Section 80IB(10) for the housing project. The AO, after detailed verification, accepted the claim. The Pr. CIT, however, directed further inquiries, questioning the eligibility of the deduction based on the project's approval by the Gram Panchayat.4. Alleged Errors and Prejudices in the Assessment Order Passed by the AO:The assessee contended that the AO's order was neither erroneous nor prejudicial to the revenue's interest. The AO had issued notices and received detailed replies from the assessee, including project details, land purchase agreements, commencement and completion certificates, and auditor's reports. The AO's acceptance of the deduction was based on these thorough inquiries.5. Jurisdiction and Authority of the Gram Panchayat to Approve Housing Projects:The assessee cited multiple tribunal decisions and a jurisdictional High Court ruling, asserting that the Gram Panchayat is a competent local authority to approve housing projects for claiming deductions under Section 80IB(10). The Tribunal concurred, referencing the Nagpur Tribunal's decision in ITO vs. M/s Swapnashilp Developers and the Pune Tribunal's decision in Hiraman Nivrutti Bhujbal vs. ITO, which upheld the Gram Panchayat's authority.6. Validity of the Order Passed under Section 263:The Tribunal concluded that the AO had made sufficient inquiries before passing the assessment order and had taken a legally permissible view. Since the AO's order was not erroneous, the invocation of Section 263 by the Pr. CIT was unwarranted. The Tribunal emphasized that both conditions of Section 263—error and prejudice to the revenue—must be met, which was not the case here. Consequently, the order passed by the Pr. CIT was deemed a change of opinion and was set aside.Conclusion:The Tribunal allowed the appeal filed by the assessee, quashing the order passed under Section 263 and restoring the AO's order dated 30.03.2015. The Tribunal affirmed that the Gram Panchayat Adai is a competent authority for approving the housing project for the purpose of claiming deductions under Section 80IB(10). The AO's order was upheld as neither erroneous nor prejudicial to the interest of the revenue.