2022 (8) TMI 1271 - AT - Income Tax

Tribunal quashes tax order, upholds deduction claim

Smt. Kumari Shiwangi Versus The Chief CIT ( (OSP), Shimla

The Tribunal allowed the appeal, quashing the order under section 263 of the Income Tax Act, 1961, emphasizing that initiating proceedings solely on an ... Revision u/s 263 - deduction u/s 80IC - reliance on ‘audit objection’ which has led to the issuance of notice u/s 263 - as per CIT claim of deduction u/s 80IC of the Act had been allowed by the AO on a wrong appreciation of facts as the area in which the manufacturing unit was located did not fall in the area notified by the CBDT for the purpose of claiming deduction u/s 80IC - HELD THAT:- Undisputedly, the show cause notice u/s 263 has been prompted by the ‘audit objection’, which is evident from the show cause notice issued u/s 263, where there is a reference to the said ‘Audit objection’ in Para 3 of ‘show cause notice’ and, thus, this contention of the assessee deserves to be taken into consideration. This issue is covered by the order of the Chandigarh Bench of the ITAT in the case of ‘Ganga Acrowools Limited [2022 (5) TMI 895 - ITAT CHANDIGARH] wherein held Principal Commissioner of Income-tax was not justified in exercising his power to invoke the provision of section 263 of the Act on the basis of audit objection raised by the Audit Wing of the Department. - Decided in favour of assessee. Issues:1. Validity of order u/s 263 of the Income Tax Act, 19612. Claim of deduction u/s 80IC of the Act3. Application of mind by the Assessing OfficerIssue 1: Validity of order u/s 263 of the Income Tax Act, 1961:The appeal was against the order passed u/s 263 of the Income Tax Act, 1961 by the Ld. Principal Commissioner of Income Tax. The Ld. PCIT had set aside the assessment order with a direction to the AO to re-compute the income of the assessee. The assessee challenged this order on the grounds that the original assessment was done after due application of mind by the Assessing Officer and that the PCIT failed to appreciate the facts. The Ld. AR argued that the initiation of proceedings u/s 263 based on an audit objection was not valid, citing precedents where such proceedings were quashed. The Tribunal ultimately quashed the order u/s 263, emphasizing that the PCIT was not justified in invoking the provision based solely on an audit objection.Issue 2: Claim of deduction u/s 80IC of the Act:The dispute arose regarding the claim of deduction u/s 80IC of the Act by the assessee for the assessment year 2014-15. The Ld. PCIT alleged that the claim had been wrongly allowed by the AO without verifying all necessary conditions. The assessee contended that the Assessing Officer had duly applied his mind and made requisite inquiries to allow the deduction. The Ld. Commissioner of Income Tax argued that the unit was not eligible for the deduction as it did not fulfill the conditions under section 80IC. However, the Tribunal noted that the AO had examined the past history of the case and made necessary verifications before allowing the deduction. The Tribunal ultimately allowed the appeal of the assessee in this regard.Issue 3: Application of mind by the Assessing Officer:The Ld. AR highlighted that the Assessing Officer had issued a questionnaire during the assessment proceedings and the assessee had provided detailed responses regarding the claim under chapter XVIA. The AR argued that the AO had applied his mind and considered all relevant aspects before allowing the deduction u/s 80IC. The Tribunal, while quashing the order u/s 263, did not delve further into this issue as the main contention was the validity of the PCIT's order based on an audit objection.In conclusion, the Tribunal allowed the appeal of the assessee, quashing the order passed by the Ld. PCIT u/s 263 of the Income Tax Act, 1961. The Tribunal emphasized that the initiation of proceedings based solely on an audit objection was not justified. The Tribunal also acknowledged that the Assessing Officer had properly considered the claim of deduction u/s 80IC before allowing it, despite the contentions raised by the Revenue.