263 quashed by Gujarat high court.

2010-TIOL-552-HC-AHM-IT

IN THE HIGH COURT OF GUJARAT

AT AHMEDABAD

TAX APPEAL No. 689 of 2009

COMMISSIONER OF INCOME TAX-I

Vs

NUTAN ORGANISERS

D A Mehta And H N Devani, JJ

Dated : July 13, 2010

Appellant Rep. by : Mr B B Naik, Sr Adv with Mrs Mauna M Bhatt
Respondent Rep. by : None

Income Tax - Sections 80IB, 263 - Whether the powers u/s 263 can be invoked even by satisfying any one of the two conditions prescribed in the law.

The assessee a registered partnership firm, is engaged in the business of developing housing projects. The assessee entered into an agreement for developing and constructing houses, flats and shops in terms of the agreement. The assessee filed return of income for A.Y 2003-04 declaring the total income at Nil after claiming deduction u/s 80IB(10). The AO after making necessary verification of the construction activities, accepted the claim of the assessee for deduction u/s 80IB [10] and framed assessment u/s 143(3) taking the income at Nil. CIT initiated proceedings u/s 263 on the ground that deduction u/s 80IB(10) was available to an 'undertaking, developing and building housing projects'. Since the assessee was not the undertaking which had promoted and developed the said housing project, the AO had erred in accepting the assessee's claim for deduction u/s 80IB(10) and cancelled the assessment order and directed the AO to frame a fresh assessment .The Tribunal allowed the  assessee appeal.

Issue taken to the High Court where the counsel of the Revenues submitted that the AO had finalised assessment without any evidence with regard to ownership of land on which the project was constructed by the assessee. The assessee was merely a contractor and was, therefore, not eligible for any deduction u/s 80IB(10). It was also submitted that the order passed by the AO being erroneous and prejudicial to the interest of the revenue.

Having heard the parties the High Court has held that,

++ a perusal of the notice u/s 263 as reproduced in the impugned order indicates that the same has been issued on the ground that the order of assessment is prejudicial to the interests of revenue. The said notice does not indicate that the order sought to be revised is erroneous.

++ the notice satisfies only one of the twin conditions which are required to be satisfied for the purpose of invoking the power u/s 263, namely that the order is prejudicial to the interests of revenue. However, the other condition, namely, that the order is erroneous is evidently not satisfied.

++ the invocation of the power u/s 263 by the Commissioner, not being in consonance with the provisions of the said section, it cannot be stated that the Tribunal has committed any legal infirmity so as to warrant interference.

Revenue's Appeal dismissed.

Cases Followed.

Malabar Industrial Co. Ltd. Vs. CIT (2002-TIOL-491-SC-IT)

 

JUDGEMENT

Per : H N Devani, J :

1. In this appeal under section 260A of the Income Tax Act, 1961 (the Act), appellant revenue has proposed the following four questions :

"[i] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in coming to the conclusion that deduction under section 80IB(10) of the Act has committed an error in exercise of jurisdiction under section 263 of the Income Tax Act?

[ii] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in coming to the conclusion that the Commissioner of Income Tax-I, Surat, has committed an error in exercise of jurisdiction under section 263 of the Income Tax Act ?

[iii] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in coming to the conclusion that the Commissioner of Income Tax-I, Surat, has initiated proceeding under section 263 of the Income Tax Act only on the ground that the assessment order dated 31.3.2006 passed by the Assessing Officer is prejudicial to the Revenue and is not erroneous?

[iv] Whether, on the facts and in the circumstances of the case, the impugned order passed by the Income Tax Appellate Tribunal is contrary to the evidence and material on the record of the case and is suffering from non-application of mind and, hence, perverse or not ?"

2. The respondent assessee is a registered partnership firm engaged in the business of developing housing projects. During the previous year relevant to assessment year 2003-2004, the assessee entered into an agreement with M/s. Anand Row Houses and Apartments Pvt. Ltd. for developing and constructing houses, flats and shops in terms of the agreement. The assessee filed return of income for assessment year 2003-04 declaring the total income at Nil after claiming deduction under section 80IB(10) of the Act to the tune of Rs.62,64,157/-. The Assessing Officer after making necessary verification of the construction activities, accepted the claim of the assessee for deduction under section 80IB[10] and framed assessment under section 143(3) taking the income at Nil. Later on the Commissioner of Income Tax, Surat after examining the assessment record for the year under consideration initiated proceedings under section 263 of the Act on the ground that deduction under section 80IB(10) was available to an 'undertaking, developing and building housing projects'. Since the assessee was not the undertaking which had promoted and developed the said housing project, the Assessing Officer had erred in accepting the assessee's claim for deduction under section 80IB(10). Vide order dated 24.3.2008 made under section 263 of the Act, the Commissioner cancelled the assessment order made under section 143(3) of the Act and directed the Assessing officer to frame a fresh assessment after examining all relevant facts of the case and all aspects involved in the claim of deduction under section 80IB of the Act. The assessee carried the matter in appeal before the Tribunal and succeeded.

3. Assailing the impugned order of the Tribunal, the learned Counsel for the appellant submitted that the Assessing Officer had finalised assessment without any evidence with regard to ownership of land on which the project of Anand Row Houses and Apartments was constructed by the assessee. The assessee was merely a contractor and had not organised the project of Anand Row Houses and Apartments and was, therefore, not eligible for any deduction under section 80IB(10) of the Act. It was submitted that the order passed by the Assessing Officer being erroneous and prejudicial to the interest of the revenue, the Tribunal had committed an error in setting aside the order made by the Commissioner in exercise of powers under section 263 of the Act.

4. As can be seen from the impugned order of the Tribunal, before the Tribunal it had been contended on behalf of the assessee that proceedings under section 263 of the Act can be initiated only after having come to a prima facie conclusion that the order proposed to be revised is erroneous so as to be prejudicial to the interest of the revenue. If any of the two requirements are not satisfied, initiation of proceedings under section 263 of the Act would itself be bad in law. It was also contended that the proceedings under section 263 had been initiated for want of ownership of the land, which was not the requirement of the provisions for grant of deduction under section 80IB(10) of the Act. The Tribunal after considering the provisions of section 80IB (10), held that from the said provision, it was quite clear that requirement of ownership of the land is not clearly spelt out, and therefore, the provision at the most can be said to be liable to two interpretations. If the Assessing Officer had adopted one interpretation, his order cannot be said to be erroneous and prejudicial to the interest of the revenue.

5. As regards the validity of initiation of proceedings under section 263, the Tribunal was of the view that the same was bad in law inasmuch as the notice issued by the Commissioner itself was vague. The Tribunal further found that the order under section 263 was bad on the ground that the Commissioner had proceeded to pass the order only on the basis of the conclusion that the assessment order in question was prejudicial to the interest of the revenue. According to the Tribunal the settled legal position is that the assessment order to be revised must be erroneous as well as prejudicial to the interest of revenue. Unless and until both these conditions are satisfied, the Commissioner is precluded from exercising powers under section 263 of the Act.

6. Insofar as invocation of the power under section 263 of the Act is concerned, the apex court in Malabar Industrial Co. Ltd. Vs. CIT, (2000) 243 ITR 83 = (2002-TIOL-491-SC-IT) has held that a bare reading of section 263 of the Act makes it clear that the pre-requisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the revenue. If one of them is absent, that order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue, recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous that the section will be attracted.

7. Examining the facts of the present case in the light of the aforesaid decision, a perusal of the notice under section 263 as reproduced in the impugned order indicates that the same has been issued on the ground that the order of assessment is prejudicial to the interests of revenue. The said notice does not indicate that the order sought to be revised is erroneous. In the circumstances the notice satisfies only one of the twin conditions which are required to be satisfied for the purpose of invoking the power under section 263, namely that the order is prejudicial to the interests of revenue. However, the other condition, namely, that the order is erroneous is evidently not satisfied. In the circumstances, the invocation of the power under section 263 by the Commissioner, not being in consonance with the provisions of the said section, it cannot be stated that the Tribunal has committed any legal infirmity so as to warrant interference.

8. For the foregoing reasons, no question of law much less any substantial question of law can be stated to arise out of the impugned order of the Tribunal.

The appeal is accordingly dismissed.

 

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