ITAT quashes PCIT revision order under Section 263 for Section 10AA deduction claim

The ITAT Jaipur quashed the PCIT's revision order u/s 263 challenging the assessee's claim for deduction u/s 10AA. The PCIT had initiated revision based on revenue audit objection, alleging lack of enquiry by the AO regarding the assessee's eligibility for the deduction. The ITAT held that the claim was already allowed from AY 2011-12, all relevant issues had been examined during reassessment proceedings from AY 2010-11 to 2017-18, and the AO had conducted proper enquiries. The revision was deemed a mere change of opinion without any error in the original assessment order.

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Issues Involved:
1. Condonation of Delay
2. Validity of Proceedings under Section 263
3. Merits of the Case

Summary:

1. Condonation of Delay:
The assessee filed an application for condonation of delay in filing the appeal, citing the COVID-19 pandemic as the reason. The Tribunal condoned the delay of 58 days, noting that the appeal was within the limitation period of 120 days as prescribed by the Act and the Supreme Court's order in Suo Moto Writ Petition (Civil) No.(s) 3/2020 dated 27.04.2021.

2. Validity of Proceedings under Section 263:
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263, asserting that the reassessment order passed by the Assessing Officer (AO) under Section 147 read with Section 143(3) was erroneous and prejudicial to the interest of the revenue. The PCIT argued that the AO failed to make necessary inquiries regarding the eligibility and allowability of deductions under Section 10AA of the Income Tax Act, 1961.

The Tribunal noted that the PCIT's action was primarily based on an audit objection and not on an independent examination of records. Citing various judicial precedents, including decisions from the Punjab & Haryana High Court and ITAT benches, the Tribunal held that proceedings under Section 263 cannot be initiated solely based on audit objections. The Tribunal emphasized that the PCIT must independently call for and examine records to determine if the AO's order is erroneous and prejudicial to the interest of the revenue.

3. Merits of the Case:
The Tribunal examined the merits of the case and found that the AO had conducted a detailed inquiry during the reassessment proceedings. The AO had considered the facts, past history, and relevant provisions of law before allowing the deduction under Section 10AA. The Tribunal noted that the AO had made proportionate disallowances based on the facts gathered during the survey and reassessment proceedings.

The Tribunal also highlighted the principle of consistency, noting that similar issues were examined and accepted in previous and subsequent assessment years without invoking Section 263. The Tribunal cited the Supreme Court's decision in Radha Soami Satsang v. CIT, which emphasized that a consistent view should be maintained unless there is a material change in facts.

Conclusion:
The Tribunal quashed the order passed by the PCIT under Section 263, holding that the proceedings were initiated based on audit objections and lacked independent examination. The Tribunal also found that the AO had conducted a proper inquiry during the reassessment proceedings, and there was no error in the AO's order that was prejudicial to the interest of the revenue. The appeal of the assessee was allowed.

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