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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH (Conducted Through Virtual Court) Before: Ms. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member ITA No. 765/Ahd/2019 Assessment Year 2013-14
True Sparrow Systems Pr. Commissioner of Pvt. Ltd. Kothipole, Income-tax, Vadodara-2, 2nd Floor, Aayakar Raopura, Vs Vadodara-390001 Bhavan, Race Course PAN: AACCT7101J Circle, Vadodara-390001 (Appellant) (Respondent)
Assessee by: Shri Tuhsar Hemani, Sr. A.R. with Shri Anil R. Shah, C.A. & Shri Parimalsinh B. Parmar, Advocate Revenue by: Shri Samir Tekriwal, CIT-D.R. Date of hearing : 23-02-2022 Date of pronouncement : 22-04-2022 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal by the assessee against the order u/s 263 of the Act dated 26/03/2019 passed by the Pr. CIT Vadodara-2.
The assessee has raised the following grounds of appeal:- “1. The ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the
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impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue.
Ld. PCIT grossly erred in not appreciating that in order to invoke s.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, ld. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s.263 of the Act. Under the circumstances, the very assumption of power u/s.263 of the Act is unjustified and bad in law and therefore, order u/s.263 of the Act deserved to be quashed.
The subject order u/s. 263 passed by Id. PCIT is illegal and bad in law in absence of any finding of Id. PCIT how the alleged error of AO has resulted in to loss of revenue particularly when deduction u/s. 10AA of the Act is otherwise allowable in substance, filing of wrong form is merely a technical error and Form 56F has also since been filed.
The ld. PCIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the
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revenue, the action of ld. PCIT is without jurisdiction and illegal and hence deserves to be deleted.
Ld. PCIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.”
Grounds No. 1 to 6:
Brief Facts relation to the case is that the assessee was engaged in the business of providing information technology services. During the year, the assessee declared total income of Rs. 10,64,779/- after claiming exemption of Rs. 5,93,30,777/- u/s. 10AA of the Act. The assessee had registered itself with SEEPZ Special Economic Zone and it was required to claim exemption u/s. 10AA of the Act by filing form 56F. However, ld. Pr. CIT observed that the assessee had incorrectly submitted form 56G (instead of form 56F) which is required for claiming exemption u/s. 10B of the Act. The ld. Pr. CIT initiated proceeding u/s 263 of the Act to disallow the claim of assessee of Rs. 5,93,30,777/- u/s. 10AA of the Act.
Before ld. Pr. CIT, the A.R. of the assessee submitted that assessee satisfied all conditions enumerated u/s. 10AA of the Act and was eligible for
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claiming deduction under the said section. He submitted that filing of audit report u/s. 56F by chartered accountant is a procedural condition in order to support the claim of the assessee. In the present case, the fact that form 56G was filed by the auditor is a bonafide inadvertent mistake on part of the chartered accountant of the assessee. The books of the assessee have been audited and further in the said form 56G, the auditor has verified the claim made by the assessee u/s. 10AA of the Act to be true and correct. The assessee also filed copy of revised form 56F by the CA certifying the deduction claimed u/s. 10AA of the Act before Pr. CIT during the course of proceeding u/s 263 of the Act. The assessee placed reliance on various judicial precedents in support of his contention that procedural flaws such as non-filing of audit report or delay in furnishing the same is a procedural default and cannot be invoked to disallow the benefits of exemptions/deductions available to the assessee once he has satisfied all other conditions laid down under the section for claiming deductions/exemptions. The assessee submitted that the fact that form 56G was filed instead of form 56F was a bonafide inadvertent mistake on part of the chartered accountant of the assessee. However, the same should not be construed as an action prejudicial to the interest of the Revenue. The conditions behind the claim of deduction u/s. 10AA of the Act have been duly fulfilled by the assessee company. The assessee should not be deprived of benefit u/s. 10AA of the Act owing to procedural lapse of filing incorrect form 56G instead of 56F at the time of the assessment proceedings.
The ld. Pr. CIT however rejected the submissions of the assessee by holding as under:-
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“6. The submission of the assessee has been perused. It is an admitted position that the assessee was required to file Form No. 56F along with Audit report in order to claim deduction under section 10AA of the Act for A.Y. 2013-14. The assessee submitted form no. 56G at the time of assessment proceedings. The AO failed to take notice of the above procedural lapse and allowed the claim in flagrant violation of the stipulated condition. AO should have called for the correct declaration and should have verified the same at the time of assessment proceedings. The assessing officer did not verify the eligibility of the assessee for claiming the deduction u/s. 10AA of the Act at the time of assessment proceedings.
In view of the above discussion the order is seen to have been passed by not making proper enquiries, examining the records and without appreciating the provisions.
In the case of K.A. Ramaswamy Chettiar (220 ITR 657) the Hon'ble Madras High Court has held that when the ITO is expected to make an enquiry of a particular item of income and if he does not make an enquiry as expected, that would be a ground for the Commissioner of Income Tax to interfere U/s. 263 with the order passed by the ITO, since such an order passed by the ITO is erroneous and prejudicial to the interest of the revenue. 8.1 In the case of Swarup Vegetable Products vs. Commissioner of Income Tax (1990) 187 ITR 412 (All), it was held by Hon'ble Allahabad High Court as under:-
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"It is beyond dispute that, U/s. 263 of the IT Act, the CIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary, and that the order of the ITO is prejudicial to the interest of the Revenue." 9. As per clause (a) to Explanation 2 to Section 263 of the Income Tax Act, an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if in the opinion of the Pr. CIT or CIT, the order is passed without making inquiries or verification which should have been made. In the instant case, the failure on the part of the A.O. with regard to examination/verification of the issues discussed in Para 6 herein above has rendered the assessment erroneous, in so far as, it is prejudicial to the interest of revenue. Therefore, in exercise of the powers conferred by the Section 563 of the Income-tax Act, 1961, the assessment is set-aside with the directions that the assessment should be framed afresh by the A.O. after proper enquiries /verification on the aforementioned issues, examining the accounts and records of the assessee and after allowing reasonable opportunity of being heard to the assessee. The AO is directed to examine the claim by obtaining the stipulated form 56F and allow the claim after such examination if found in order as per Law.”
Before us, the ld. counsel for the assessee submitted that during the course of original assessment, the ld. A.O. called upon the assessee to furnish details in respect of claim of exemption u/s. 10AA of the Act. The
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assessee furnished details in relation to claim u/s. 10AA along with form 56G vide letter dated 05-08-2015 and gave further explanation in relation to claim u/s. 10AA vide letter dated 15-12-2016. The ld. A.O. after considering the details filed by the assessee chose not to disturb the claim of exemption u/s. 10AA of the Act while framing assessment u/s. 143(3) vide order dated 30-11-2016. The ld. counsel for the assessee submitted that filing of form 56F at the “revision stage” is sufficient compliance of the procedural aspect and hence exemption u/s. 10AA of the Act cannot be disturbed. He submitted that filing of form 56B instead of form 56F was a procedural lapse which was duly corrected during the course of proceeding u/s. 263 before Pr. CIT. The ld. Pr. CIT in the instant case failed to appreciate that for the purpose of invoking revisionary jurisdiction, it is essential that both the conditions u/s. 263 of the Act viz. that the A.O’s order must be erroneous and prejudicial to the interest of the Revenue, must be satisfied. The issue of claim u/s. 10AA of the Act was examined in detail at the time of original assessment stage and after due application of mind, the ld. A.O. allowed the 10AA claim of the assessee. It is a settled proposition of law that when an issue has been examined at the time of original assessment stage, it is not open to the Department to invoke revisionary jurisdiction, if the view taken by the AO is a plausible view. The ld. D.R. in response placed reliance on the observations of the ld. Pr. CIT in the 263 order.
We have heard the rival contentions and perused the material on record. The issue for consideration before us is whether if assessee has incorrectly filed claim of exemption u/s 10AA of the Act in an incorrect
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format, which has been accepted by the Ld. AO after examining the issue of claim of exemption of exemption u/s 10AA of the Act albiet inadvertently, then would that be adequate reason to initiate proceedings u/s 263 of the Act.
7.1 In our view, it is a well accepted principle of law that beneficial provisions should be given a liberal construction and once the assessee has satisfied the conditions laid down for claiming deduction/exemption under the relevant beneficial provision, the same should not be denied. We are of the view that exemption benefits u/s 10AA cannot be denied to the assessee on account of a procedural lapse committed by the Chartered Accountant of the assessee. We must always keep the object of the Act in view while interpreting the section. The legislative intention must be the foundation of the court’s interpretation.The Supreme Court in the case of State of Kerala v. Mother Superior Adoration Convent [2021] 126 taxmann.com 68 (SC) 24 observed as under: “This being the case, it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is
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exempted. Consequently, for the reasons given by us, we agree with the conclusions reached by the impugned judgments of the Division Bench and the Full Bench.”
7.2 In IPCA Laboratory Ltd. v. Dy. CIT [2004] 12 SCC 7421 the Supreme Court in the said judgment observed that section 80HHC has been incorporated with a view to provide incentive to export houses and this section must receive liberal interpretation. In Bajaj Tempo Ltd. v. CIT [1992] 3 SCC 78, the Supreme Court while interpreting section 15C of the Income-tax Act, 1922 observed that the section, read as a whole, was a provision, directed towards encouraging industrialization by permitting an assessee setting up a new undertaking to claim benefit of not paying tax to certain extent on the capital employed. Though in the case of Ramnath & Co v. CIT [2020] 116 Taxmann.com 885/272 Taxman 275 (SC), the Supreme Court held that the 'Beneficial Provision' ought to be interpreted strictly and that the burden of proving the applicability rests on the assessee, and in case of ambiguity the benefits cannot be claimed by the assessee, rather it would be interpreted in favour of the Revenue, however, in our view in the instant case, the Ld. Pr. CIT has not challenged the eligibility of assessee to claim deduction u/s 10AA of the Act, but is seeking to deny the benefit of exemption on account of a procedural lapse committed by the assessee. The Gujarat High Court in the case of Kishorbhai Harjibhai Patel v. ITO [2019] 107 taxmann.com 295 (Gujarat) held that section 54F is a beneficial provision and is applicable to an assessee when the old capital asset is replaced by a new capital asset in the form of a residential house. Once an assessee falls within the ambit of a beneficial provision, then the
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said provision should be liberally interpreted. In the case of State of Gujarat v. S.A. Himnani Distributors (P.) Ltd. [2014] 43 taxmann.com 358 (Gujarat), the Gujarat High Court held that when State is inclined to give some tax benefit to tax payers, terms or provisions of policy should be interpreted in a liberal manner and with an intention to see that purpose for which policy is framed is fulfilled and beneficiaries is helped and the interpretation must not be such which would frustrate objective of policy. Section 10AA of the Act is a beneficial provision aimed at encouraging exports of goods and services by setting up of industrial units in special economic zones. In our view, benefit of section 10AA should not be denied on account of a procedural/ technical default by the assessee or his chartered accountant by invoking revisionary jurisdiction u/s 263 of the Act, if otherwise the assessee is eligible to claim deduction under the said exemption provision.
7.3 Another aspect for consideration is that whether there is sufficient compliance once assessee has filed the revised Form 56F in section 263 proceedings before Pr. CIT. In the case of M/s. ACN Info-Tech vs. ACIT ITA No. 79/Viz/2017, instead of claiming deduction u/s. 10AA of the Act, the assessee claimed deduction u/s. 10B of the Act in the income tax return. The A.O. rejected the claim on the ground that assessee did not file form 56F along with return of income and had filed form 56G instead. The ld. A.R argued that the AO ought to have allowed the deduction u/s. 10AA since the assessee had filed form 56F during assessment proceeding which was a pure technical mistake. The Tribunal held that benefit of deduction should not be disallowed as the assessee had duly fulfilled the conditions for
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claiming exemption u/s. 10AA of the Act. In the case of ITO v. Accentia Technologies 52 taxmann.com 89 (Mum), the Mumbai Tribunal held that deduction under section 10A cannot be denied merely because at time of filing of return, claim had mistakenly been made under section 10B of the Act. The Gujarat High Court in the case of Zenith Processing Mills v CIT 219 ITR 721 (Guj) held that provision of section 80J(6A) to extent it requires furnishing of auditor's report in prescribed form along with return, is directory in nature and not mandatory. Further, assessee can be permitted to produce such report at later stage when question of disallowance arises during course of assessment proceedings. In the instant case, the ld. Pr. CIT has not disputed that the issue for claiming deduction u/s. 10AA of the Act has been discussed with the assessee during the course of assessment proceeding. The ld. Pr. CIT has also not disputed the fact that this is the second year for claiming deduction u/s. 10AA of the Act by the assessee and that the Pr. CIT has not challenged that the assessee has not fulfilled the conditions eligible for claiming deduction. The ld. Pr. CIT has initiated 263 proceeding only on account of an inadvertent error on the part of the chartered accountant of the assessee by filing form 56G instead of form 56F in support of claim of deduction u/s. 10AA of the Act. This error has also been rectified by the A.R. of the assessee during the course of 263 proceeding wherein revised form 56F for claiming deduction u/s. 10AA of the Act was produced before Pr. CIT during 263 proceeding. We are therefore of the view that there is sufficient compliance if the correct form 56F has been filed during the course of revisionary proceeding, there is no material objective to be achieved by directing revision of the original
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assessment order once the procedural lapse for which revisionary proceedings has been initiated has been rectified during 263 proceedings.
7.4 The third aspect for our consideration is whether once the Ld. AO has examined the claim u/s 10AA of the Act and has accepted the same, on appreciation of documents placed on record, can it be said that the twin conditions of section 263 of the Act viz. order passed is erroneous and prejudicial to the interests of revenue are satisfied, in the instant facts. On going through the records of the case, it is seen that the issue of deduction u/s 10AA of the Act has been dealt in detail by the Ld. AO during the course of assessment proceedings. On a perusal and comparison of Form 56G (earlier filed with Ld. AO during assessment proceedings) and Form 56F with Ld. Pr. CIT, it is seen that the contents of exemption filed are similar. In Form 56G filed with Ld. AO, the assessee has claimed exemption u/s 10AA of the Act and has given a working of how the claim of exemption u/s 10AA of the Act has been arrived at. Identical details were filed before Ld. Pr. CIT in 263 proceedings albeit in a different form (revised Form 56F). Therefore, in our considered view, in the instant case though there may be a procedural breach, but on the aspect of claim of deduction u/s 10AA, the issue has been analyzed by the Ld. AO in detail during the assessment proceedings and relied granted accordingly. Even in the 263 proceedings, the Ld. Pr. CIT has not challenged the assessee’s eligibility to claim deduction u/s 10AA of the Act nor has he pointed out any error in the findings of the Ld. AO with regards to the assessee’s claim u/s 10AA of the Act. The only contention of Ld. Pr. CIT is that the Ld. AO failed notice that claim of exemption u/s 10AA of the Act has been filed in an incorrect Form,
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which the assessee revised during the course of revisionary proceedings. In our considered view, in the instant facts, the twin conditions of section 263 of the Act viz. order passed is erroneous and prejudicial to the interests of revenue are not satisfied in the instant facts. In our view, Ld. Pr. CIT erred in law and in facts in invoking section 263 of the Act to revise the order of Ld. AO
7.5 In the result, we hold that the Ld. Pr. CIT(A) has erred in law and in facts in initiating proceedings u/s 263 of the Act. In the result, Ground Numbers 1 to 6 of the assessee are allowed.
In the result appeal of the assessee is allowed.
Order pronounced in the open court on 22 -04-2022 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 22/04/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद