2024 (6) TMI 1356 - AT - Income Tax

CIT cannot revise Section 80P deduction disallowance when AO took legally plausible view during assessment proceedings

ITAT Rajkot held that CIT's revision under Section 263 regarding disallowance of Section 80P deduction on interest income from cooperative banks was ... Revision u/s 263 - Deduction u/s 80P on interest income from company- operative banks should be disallowed - HELD THAT:- An inquiry made by the AO, considered inadequate by the CIT, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the AO fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the AO. It is AO’s prerogative to make inquiry to the extent he feels proper. The CIT by invoking revisionary powers under Section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. This is not a fit case for invocation of provisions of Section 263 of the Act. This is for the reason that firstly, we observe that the assessing officer had examined the issue in detail during the course of assessment proceedings, and it is not a case where there was any apparent lack of enquiry on this aspect by the assessing officer. Secondly, the assessing officer had taken a view which is a legally plausible view and it is a well settled law that 263 proceedings cannot be resorted to by the PCIT only with the view to supplant his own view with the view taken by the assessing officer. Further, the decision of Katlary Kariana [2022 (1) TMI 1309 - GUJARAT HIGH COURT] was on the aspect of reopening of assessment under Section 147 of the Act and not directly on the issue of claim of reduction under Section 80P of the Act. Therefore, once it is seen from the records that the assessing officer had made due enquiries during the course of assessment proceedings on this aspect and had taken a view, which is a legally possible view, then, in our considered view PCIT cannot resort to 263 proceedings only to supplant his own view with the view taken by the Assessing Officer. Decided in favour of assessee. Issues Involved:1. Assumption of jurisdiction under Section 263 of the Income-tax Act.2. Denial of deduction under Section 80P(2)(d) of the Income-tax Act.3. Invocation of revision proceedings based on revenue audit objections.4. Failure to appreciate documentary evidence.5. Violation of the 'rule of consistency.'Issue-wise Detailed Analysis:1. Assumption of jurisdiction under Section 263 of the Income-tax Act:The assessee contended that the Principal Commissioner of Income Tax (PCIT) erred in assuming jurisdiction under Section 263 to substitute his subjective view for the judicious view taken by the Assessing Officer (AO). The PCIT deemed the AO's order erroneous and prejudicial to the revenue's interest without proper jurisdiction, rendering the order void ab initio. The Tribunal found that the AO had conducted inquiries and taken a legally plausible view, thus the PCIT's assumption of jurisdiction under Section 263 was unjustified.2. Denial of deduction under Section 80P(2)(d) of the Income-tax Act:The PCIT held that the AO erroneously allowed a deduction under Section 80P(2)(d) for interest income from cooperative banks, which should be disallowed as per the PCIT's interpretation. The Tribunal noted that various courts had decided in favor of the assessee regarding such deductions. The AO had examined the issue in detail, and the view taken was legally plausible. Hence, the PCIT's direction to deny the deduction was not sustainable.3. Invocation of revision proceedings based on revenue audit objections:The assessee argued that the PCIT invoked revision proceedings solely based on revenue audit objections without independently examining the records. The Tribunal observed that the PCIT's action was influenced by audit objections and lacked an unbiased and independent application of mind, contravening the provisions of law and established legal precedents. Therefore, the invocation of Section 263 was invalid.4. Failure to appreciate documentary evidence:The PCIT failed to consider the documentary evidence and explanations provided by the assessee during the revisionary proceedings. The Tribunal found that the AO had duly considered the documentary evidence and explanations during the assessment proceedings. The PCIT's reliance on audit objections without appreciating the factual correctness and detailed examination by the AO was arbitrary and unjustified.5. Violation of the 'rule of consistency':The assessee highlighted that the deduction under Section 80P(2)(d) had been consistently allowed by the AO and appellate authorities in previous assessments. The PCIT's order violated the 'rule of consistency' by arbitrarily invoking Clause (a) of Explanation 2 of Section 263. The Tribunal held that the PCIT's action was against the settled legal position and lacked jurisdiction, rendering the order invalid.Conclusion:The Tribunal concluded that the AO had conducted adequate inquiries and taken a legally plausible view. The PCIT's invocation of Section 263 to supplant his own view was unjustified. The Tribunal set aside the PCIT's order under Section 263, allowing the assessee's appeal. The detailed analysis and judicial precedents supported the Tribunal's decision, emphasizing the importance of adequate inquiry and the AO's discretion in assessment proceedings.