CIT cannot direct AO u/s 263 to decide if findings recorded are erroneous without own finding

CIT cannot direct AO u/s 263 to decide whether the findings recorded are erroneous without his own clear finding that the order is erroneous and how that is so. 

ABCAUS Case Law Citation:
ABCAUS 3066 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Contimeters Electrical Pvt. Ltd. 317 ITR 249
ITO v. DG Housing Projects [2012] 343 ITR 329
Zenith Processing Mills 219 ITR 721
Deniel Merchants Pvt. Ltd. vs. ITO
CIT Vs Ballarpur Industries Ltd. f20171 85 taxmann.com 10
Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)
Rajmandir Estates (P.) Ltd. Vs PCIT

In the instant appeal had been filed by the assessee against the order of the PCIT in invoking powers u/s 263 of the Income Tax Act, 1961 (the Act) and directing the Assessing Officer (AO) to examine the eligibility or disqualification of the assessee u/s 80IC of the Act on the ground that audit report under Section 10CCB was not filed.

The assessee filed e-return declaring Nil income which was subsequently selected for scrutiny and the assessment was completed u/s 143(3) of the Act.

The Pr. CIT observed that the assessee had claimed deduction u/s 80IC of the Act which had been allowed by the AO without examination or even calling for Form No. 10CCB. Accordingly the Pr CIT  invoked provisions of Section 263 of the Act for revision of the assessment order.

Replying to the notice issued, the assessee submitted that Form No. 10CCB was not called by the Assessing Officer and the time of the assessment proceedings. The assessee also filed Form No. 10CCB before the Pr. CIT during the proceedings u/s 263 of the Act.

However, the Pr. CIT was of the view that since the audit report in the prescribed From No. 10CCB had not been furnished along with the return and hence no deduction should be allowed u/s 80IC(7) of the Act. Therefore Pr CIT set aside the assessment with the directions to the AO to reframe assessment after examining the validity and allowability of deduction u/s 80IC of the Act as claimed by the assessee.   

Before the Tribunal, the assessee relied on the judgments of the Hon’ble High Court and submitted that under the provisions, what is required is filing of the audit report in Form 10CCB and even when it was filed before the Pr. CIT, it was sufficient compliance of furnishing of such proof of claiming of deduction.  

On the contrary, the Revenue contended that examination of the allowability of the deduction is the job of the Assessing Officer and it was a fit case for revision u/s 263 of the Act as this factum had not been examined.

The Tribunal observed that the assessee had filed the report in Form 10CCB before the Pr. CIT, but the PCIT had not brought anything on record whether there were any in congruencies in the said report

The Tribunal opined that nullifying or set aside of the assessment order did not serve any fruitful purpose unless it was determined by the Pr. CIT that the assessee was not eligible for deduction after going through the audit report and bringing out as to how it was erroneous and prejudicial to the interest of Revenue. But no such attempt had been made by the Pr. CIT to determine the loss to the revenue. The Pr. CIT had simply set aside the order with the directions to reframe the assessment after examining the validity and allowability of the deduction u/s 80IC of the Act as claimed by the assessee.

The Tribunal noted that under the relevant provisions of section 263, the Principal Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

The Tribunal further observed that the term “record” has been defined in the Act to include all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner. Also the powers of the Principal Commissioner or Commissioner under this section extend to matters as had not been considered and decided in appeal if any.

The Tribunal opined that under the Act, the PCIT cant remand the matter to the Assessing Officer for making further enquiries or to decide whether the findings recorded are erroneous without giving his own finding not only that the order is erroneous but also how that is so.

The Tribunal stated that a simple remand to the Assessing Officer implied that the PCIT had not decided whether the order was erroneous but had directed the Assessing Officer to decide the aspect which was not permissible.

The Tribunal relied upon the judgment of the Hon’ble High Court wherein it was held that the findings recorded by the Tribunal were correct as the CIT had not gone into and had not given any reason for observing that the order passed by the Assessing Officer was erroneous.

Accordingly, the appeal of the assessee was allowed.

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