2022 (12) TMI 1303 - AT - Income Tax

Appellate Tribunal reverses PCIT's order, supports appellant on Section 80IC deduction; stresses procedural compliance

Elana Industries Versus Income Tax Officer, Ward-1 Roorkee

Elana Industries Versus Income Tax Officer, Ward-1 Roorkee - TMI Issues involved:1. Jurisdiction under Section 263 of the Income Tax Act, 19612. Existence of erroneous order causing prejudice to revenue3. Validity of notice issued to non-existent entity4. Direction of Principal Commissioner of Income Tax5. Allowance of deduction under Section 80IC6. Manufacturing activities at the factory premisesDetailed analysis:1. The appellant challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, arguing that the conditions precedent for assuming jurisdiction were absent as there was no erroneous order causing prejudice to the revenue. The appellant contended that the order allowing deduction under Section 80IC was based on detailed enquiry by the Assessing Officer, and any further direction by the PCIT would amount to a change of opinion, rendering the order bad in law. The appellant also raised objections regarding the notice issued to a non-existent entity and the direction to cancel the assessment done under Section 143(3) for a fresh assessment, arguing that the conclusions drawn by the PCIT were erroneous and not in accordance with the law.2. The PCIT passed the order under Section 263 based on a proposal that the deduction under Section 80IC was wrongly allowed due to the absence of manufacturing activities at the factory premises. The PCIT issued show cause notices, which were returned unserved, leading to further inquiries and representations by the appellant. The PCIT, unsatisfied with the explanations provided, concluded that the manufacturing activities were not being carried out, citing various reasons such as unserved notices, lack of information in sale invoices, and expenses not indicative of manufacturing activity. Consequently, the PCIT annulled the assessment order of the Income Tax Officer, leading to the appellant's appeal.3. During the appeal hearing, it was revealed that the firm's business had been closed, as evidenced by a dissolution deed, and the closure was duly intimated to the tax authorities. The notices issued post-closure were rightly returned, as the business was non-operational. The appellant's explanations regarding the manufacturing activities, sale transactions, and expenses were found to be valid, with supporting evidence provided to refute the PCIT's conclusions. The Appellate Tribunal held that the PCIT's order under Section 263 could not be affirmed based on the facts and circumstances of the case, ultimately allowing the appeal of the assessee.In conclusion, the Appellate Tribunal overturned the PCIT's order, emphasizing the importance of valid jurisdiction, proper assessment of erroneous orders, and adherence to legal procedures in tax matters.