Revision under Section 263 quashed where 80G deduction correctly allowed and assessment under Section 143(3) not erroneous

ITAT Kolkata set aside the PCIT's revision order u/s 263 concerning deduction u/s 80G. The Tribunal observed that although the tax audit report erroneously mentioned nil deduction under Chapter VIA, the assessee had already added back the donation in the profit and loss account and correctly claimed 50% deduction amounting to Rs. 8,28,001. The assessee had also furnished all relevant evidence, including the 80G certificate, in response to AO's notice u/s 142(1). ITAT held that the assessment u/s 143(3) was neither erroneous nor prejudicial to the interests of Revenue, rendering the assumption of jurisdiction by PCIT invalid. The assessee's appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assumption of revisional jurisdiction under section 263 was valid where the assessment order under section 143(3) had allowed deduction under section 80G after enquiry and verification.

1.2 Whether an error in the tax audit report showing nil deduction under Chapter VIA, contrary to the claim in the return and computation, rendered the assessment order erroneous and prejudicial to the interests of the revenue for purposes of section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Validity of revision under section 263 in respect of deduction claimed under section 80G

Legal framework (as discussed)

2.1 The Tribunal proceeded on the settled requirement that for valid exercise of jurisdiction under section 263, the order of the Assessing Officer must be both "erroneous" and "prejudicial to the interest of revenue".

Interpretation and reasoning

2.2 The Tribunal noted that the assessee had, in the computation of income, added back the full amount of donation debited in the profit and loss account and thereafter claimed deduction under section 80G at 50%, resulting in a claim of Rs. 8,28,001/-. This computation was on record.

2.3 It was observed that the tax auditor, in Form 3CD, erroneously mentioned the amount admissible under Chapter VIA as "Nil", which was inconsistent with the return and computation of income. The Tribunal recorded that this was admitted to be a mistake by the tax auditor and that the report was subsequently revised.

2.4 The Tribunal examined the assessment records, including the notice issued under section 142(1) where the Assessing Officer specifically called for evidentiary proof in respect of the claim of deduction under Chapter VIA. The assessee's reply, along with details, evidences and the certificate under section 80G, was filed before the Assessing Officer.

2.5 On these facts, the Tribunal found that the Assessing Officer had raised a specific query on the 80G/Chapter VIA claim, examined the material and accepted the claim. It was therefore not a case of lack of enquiry or non-application of mind.

2.6 The Tribunal further held that the mere reliance by the revisional authority on the mistaken entry in the tax audit report, when contradicted by the computation, return and supporting evidence examined during assessment, could not by itself render the assessment order "erroneous and prejudicial to the interest of revenue".

Conclusions

2.7 The assessment framed under section 143(3) allowing deduction under section 80G was held to be neither erroneous nor prejudicial to the interest of the revenue.

2.8 The jurisdiction assumed by the Principal Commissioner under section 263, based solely on the discrepancy in the tax audit report without appreciating the enquiry actually conducted and the material on record, was held to be invalid.

2.9 The revisional order directing the Assessing Officer to redo the assessment after fresh enquiry on the 80G claim was quashed, and the appeal of the assessee was allowed.

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