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<h1>Tribunal restores assessment order, rejects revision under Income Tax Act. Assessee eligible for exemption.</h1> <h3>Milestone Real Estate Fund Versus Asstt. Commissioner of Income Tax Circle–25 (3), Mumbai</h3> Milestone Real Estate Fund Versus Asstt. Commissioner of Income Tax Circle–25 (3), Mumbai - TMI Issues Involved:1. Validity of the order passed under section 263 of the Income Tax Act, 1961.2. Eligibility of the assessee for exemption under section 10(23FB) of the Income Tax Act, 1961.3. Alleged violation of SEBI regulations by the assessee.4. Impact of the amendments to section 10(23FB) by Finance Act, 2012 and Finance Act, 2013.Detailed Analysis:1. Validity of the Order Passed Under Section 263 of the Income Tax Act, 1961:The assessee challenged the validity of the order passed under section 263, arguing that the Principal Commissioner of Income Tax (PCIT) erred in holding the assessment order as erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the Assessing Officer (AO) had conducted a thorough enquiry and applied his mind to the facts and relevant statutory provisions before allowing the assessee's claim of exemption under section 10(23FB). The Tribunal concluded that the PCIT's exercise of revisional power was unwarranted as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal emphasized that the revisional authority cannot substitute its view over the AO's view if the latter's view is a possible one.2. Eligibility of the Assessee for Exemption Under Section 10(23FB) of the Income Tax Act, 1961:The Tribunal examined the legislative history and amendments to section 10(23FB). It noted that the assessee, a SEBI-registered Venture Capital Fund (VCF), had made investments in Venture Capital Undertakings (VCUs) primarily engaged in the real estate sector. The Tribunal observed that real estate was removed from the negative list under the SEBI (Venture Capital Funds) Regulations, 1996, w.e.f. 5th April 2004. Therefore, the assessee's investments in VCUs in the real estate sector were eligible for exemption under section 10(23FB). The Tribunal rejected the PCIT's view that the assessee was ineligible for exemption because the VCUs were not engaged in providing services, production, or manufacturing of articles or things.3. Alleged Violation of SEBI Regulations by the Assessee:The PCIT alleged that the assessee violated SEBI regulations by investing in mutual funds, which purportedly disqualified it from being considered a VCF. The Tribunal found no specific provision in the SEBI (Venture Capital Funds) Regulations, 1996, prohibiting such investments. Additionally, the Tribunal referred to a SEBI clarification that allowed VCFs to invest uninvested portions of their funds in liquid mutual funds or bank deposits. The Tribunal emphasized that any alleged violation of SEBI regulations should be addressed by SEBI, not the Income Tax authorities. Since SEBI had not taken any adverse action against the assessee, the Tribunal concluded that the PCIT's allegations were baseless.4. Impact of the Amendments to Section 10(23FB) by Finance Act, 2012 and Finance Act, 2013:The Tribunal analyzed the amendments to section 10(23FB) brought by Finance Act, 2012, and Finance Act, 2013. It noted that the amendments were effective from assessment year 2013-14, the same year for which the assessee claimed the exemption. The Tribunal observed that the amendments aimed to remove sectoral restrictions on VCUs and align the definition with SEBI regulations. The Tribunal concluded that the assessee's claim for exemption under section 10(23FB) was valid as per the amended provisions applicable for the assessment year 2013-14.Conclusion:The Tribunal set aside the order passed under section 263 of the Income Tax Act, 1961, and restored the assessment order passed by the AO. The Tribunal held that the assessee was eligible for exemption under section 10(23FB) and that the AO had correctly applied the law to the facts of the case. The Tribunal emphasized that the PCIT's exercise of revisional power was unjustified as the AO's order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal also rejected the PCIT's allegations of SEBI regulation violations, noting that SEBI had not taken any adverse action against the assessee.