2018 (8) TMI 1734 - AT - Income Tax

Revision u/s 263 - assessee not eligible to claim deduction u/s 80P on the income derived from trading and consequently the assessment order is erroneous and pre-judicial to the interests of Revenue - Held that - We are of the considered opinion that the AO has passed this order without inquiry into the issue of the claim of deduction by the assessee u/s 80P of the Act. When there is no application of mind to an issue in the assessment order such order is erroneous and in this case it is also pre-judicial to the interest of the Revenue also. In these circumstances we find no infirmity in the order of Pr.CIT who has set aside this issue for fresh adjudication denovo only to the extent of examining the claim of deduction u/s 80P of the Act - We uphold the order of the Ld. Pr.CIT and dismiss the appeal of the assessee.

Summary

Issues Involved:
1. Legitimacy of the invocation of Section 263 by the Pr. CIT.
2. Applicability of deduction under Section 80P of the Income Tax Act.
3. Consistency in the assessment orders for previous and subsequent assessment years.
4. Requirement of inquiry and application of mind by the Assessing Officer (AO).

Detailed Analysis:

1. Legitimacy of the invocation of Section 263 by the Pr. CIT:
The Pr. CIT invoked Section 263 of the Income Tax Act, proposing a revision of the assessment order passed under Section 143(3) on the grounds that the assessee was not eligible for deduction under Section 80P, making the assessment order erroneous and prejudicial to the interests of the Revenue. The Tribunal upheld this invocation, citing that the AO had passed the order without proper inquiry into the deduction claim under Section 80P, thus making the order erroneous and prejudicial to the Revenue.

2. Applicability of deduction under Section 80P of the Income Tax Act:
The assessee, a co-operative society, claimed deductions under Section 80P, which were allowed in previous assessment years. The Pr. CIT challenged this deduction for AY 2012-13, arguing that the income derived from trading was not eligible for such deduction. The Tribunal supported the Pr. CIT's stance, emphasizing that the AO did not apply his mind to the issue, thus necessitating a fresh assessment.

3. Consistency in the assessment orders for previous and subsequent assessment years:
The assessee argued that the deduction under Section 80P was consistently allowed in AY 2009-10, 2010-11, 2011-12, 2013-14, and 2014-15, and thus should be allowed for AY 2012-13. However, the Tribunal noted that consistency alone does not preclude the Pr. CIT from invoking Section 263 if the AO’s order is found to be erroneous and prejudicial to the interests of the Revenue.

4. Requirement of inquiry and application of mind by the Assessing Officer (AO):
The Tribunal highlighted the necessity for the AO to conduct a thorough inquiry and apply his mind to the issues at hand. The AO’s failure to do so in this case led to the assessment order being deemed erroneous and prejudicial to the Revenue. The Tribunal cited various judgments to reinforce that an order passed without proper inquiry is liable to be revised under Section 263.

Judgments Cited:
- Malabar Industrial Co. Ltd.: Emphasized the twin conditions for invoking Section 263: the order must be erroneous and prejudicial to the interests of the Revenue.
- Max India Ltd.: Highlighted that two views could exist on an issue, and if the AO adopts one permissible view, it cannot be deemed erroneous unless unsustainable in law.
- Vikas Polymers: Stressed that the Commissioner must provide reasons for invoking Section 263, and mere disagreement with the AO’s view does not suffice.
- Sunbeam Auto Ltd.: Clarified that lack of inquiry by the AO justifies the invocation of Section 263.
- Gabriel India Ltd.: Asserted that the Commissioner cannot start a fishing inquiry and must rely on material on record.
- Jyoti Foundation: Established that orders passed without inquiry are considered erroneous and prejudicial.
- DG Housing Projects Ltd.: Defined the AO’s role as both investigator and adjudicator, and failure to investigate makes the order erroneous.
- J. L. Morrison (India) Ltd.: Held that if the AO’s view is a possible one, it cannot be deemed erroneous unless unsustainable in law.
- Sohana Woollen Mills: Stated that mere audit objection does not justify invoking Section 263 unless the order is shown to be erroneous and prejudicial.

Conclusion:
The Tribunal upheld the Pr. CIT’s invocation of Section 263, directing a fresh assessment on the issue of deduction under Section 80P, and dismissed the assessee’s appeal. The decision emphasized the necessity for the AO to conduct proper inquiries and apply his mind to the issues, failing which the assessment order can be revised under Section 263.