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2025 (5) TMI 1325 - AT - Income TaxRevision u/s 263 - eligibility of deduction u/s 80IC - as per CIT AO had not carried out any detailed inquiries whilst accepting the assessee s above claim - HELD THAT - We find no merit in the Revenue s instant first and foremost argument as a perusal of the case file indicates that it was an instance of a limited scrutiny for examining the above section 80IC deduction issue only. And that the AO firstly issued his section 143(2) notice dated 22.09.2019 followed by yet another section 142(1) notice dated 17.12.2020 which stood duly replied on the very specific issue. That being the case we are of the considered view that the AO s scrutiny assessment could not be termed as having either not examined the above section 80IC issue or that of an inadequate inquiry as the case may be. Assessee has been converted from a proprietary concern to a partnership firm formed in the relevant previous year which disentitles it from claiming the impugned deduction in light of Goel Udyog 2010 (3) TMI 903 - ITAT DELHI - We find no substance in the Revenue s instant second argument in light of Mega Packages 2011 (8) TMI 738 - PUNJAB AND HARYANA HIGH COURT having decided the very issues in assessee s favour and against the department. That being the case we hold that judicial discipline requires us to follow hon ble higher judicial forum s adjudication than that of a learned coordinate bench. We accordingly reject the Revenue s instant second substantive argument in very terms. Invoking section 80IC(4) - It could hardly dispute that the same comes into play only in case the eligible unit is formed either by splitting up or reconstruction of a business already in existence or transfer to a new business of machinery or plant previously used for any purpose as the case may be. We hold that none of these conditions are satisfied in the assessee s instant case as the facts herein do not fall thereunder. The Revenue s instant last argument also fails in very terms. Thus as per Malabar Industrial Co. Ltd 2000 (2) TMI 10 - SUPREME COURT PCIT has erred in law and on facts in revising the Assessing Officer s above regular assessment in his impugned section 263 revision direction under challenge stand reversed therefore. Assessee s appeal is allowed.
The core legal questions considered in this appeal pertain to the correctness and legality of the Principal Commissioner of Income Tax's revision order under section 263 of the Income-tax Act, 1961. Specifically, the issues are:
Issue-wise Detailed Analysis: 1. Adequacy of the AO's Inquiry under Section 80IC Claim Legal Framework and Precedents: Section 143(3) of the Income-tax Act empowers the AO to conduct scrutiny assessments. The AO is required to make a detailed inquiry into the claims made by the assessee to ensure correctness of the returned income. Revision under section 263 can be invoked if the assessment order is erroneous and prejudicial to the interests of the Revenue. Court's Interpretation and Reasoning: The Court examined the procedural records, including notices issued under sections 143(2) and 142(1), and the replies furnished by the assessee. It was found that the AO had issued a specific notice on 22.09.2019 and a further notice on 17.12.2020, both addressing the section 80IC deduction claim. The AO's scrutiny was thus focused and limited to the deduction issue. Key Evidence and Findings: The case file showed that the AO had conducted a "limited scrutiny" specifically on the section 80IC issue. The assessee had responded to the notices with detailed submissions, which were duly considered by the AO before framing the assessment order on 1st February 2021. Application of Law to Facts: Given the procedural compliance and focused inquiry, the Court held that the AO did not fail in conducting an adequate examination of the deduction claim. The revision under section 263 was therefore not justified on the ground of inadequate inquiry. Treatment of Competing Arguments: The Revenue argued that the AO's inquiry was insufficient and superficial. The Court rejected this, relying on the documentary evidence of notices and replies, concluding that the AO's scrutiny was proper and adequate. Conclusion: The Court found no merit in the Revenue's contention that the AO failed to properly examine the section 80IC claim. 2. Effect of Conversion from Proprietary Concern to Partnership Firm on Section 80IC Deduction Legal Framework and Precedents: Section 80IC provides deductions to eligible undertakings in notified areas. The question arises whether a change in the business entity's constitution-specifically, conversion from a proprietary concern to a partnership firm-affects eligibility. The Revenue relied on a decision from a coordinate bench holding that such conversion disentitles the claim. However, the Court referred to a higher judicial authority's decision which upheld the deduction despite such conversion. Court's Interpretation and Reasoning: The Court emphasized the principle of judicial discipline, stating that decisions of higher judicial forums must be followed over coordinate benches. It found that the assessee's case was squarely covered by the higher authority's ruling in favor of the assessee. Key Evidence and Findings: The assessee was originally a proprietary concern from FY 2009-10, commenced production in the notified area, and had been claiming the deduction since AY 2010-11, which was accepted in all intervening years. The partnership firm was formed on 01.03.2017, but the business continuity and eligibility remained intact. Application of Law to Facts: The Court applied the higher judicial precedent to hold that the conversion does not disentitle the assessee from claiming section 80IC deduction. Treatment of Competing Arguments: The Revenue's reliance on a contrary decision from a coordinate bench was rejected in favor of the binding higher authority ruling. Conclusion: The Court held that the assessee's conversion from proprietary concern to partnership firm does not affect its entitlement to the deduction under section 80IC. 3. Applicability of Section 80IC(4) Regarding Use of Previously Used Plant and Machinery Legal Framework and Precedents: Section 80IC(4) bars deduction if the eligible unit is formed by splitting up or reconstructing an existing business or where machinery or plant previously used for any purpose is transferred to the new business. The provision aims to prevent misuse of the deduction by shifting existing assets to new entities. Court's Interpretation and Reasoning: The Court analyzed whether the facts of the case fell within the scope of section 80IC(4). It found that the assessee's case did not involve splitting up or reconstruction of an existing business, nor was there transfer of previously used plant and machinery to the eligible undertaking. Key Evidence and Findings: The Revenue's contention that used plant and machinery were introduced was not substantiated to the extent that it triggered the bar under section 80IC(4). The factual matrix did not satisfy the conditions enumerated in the provision. Application of Law to Facts: Since none of the conditions under section 80IC(4) were met, the bar on deduction did not apply. Treatment of Competing Arguments: The Revenue's argument was dismissed due to lack of factual basis and non-application of the statutory conditions. Conclusion: The Court held that section 80IC(4) was not attracted in the assessee's case, and the deduction claim was valid. Significant Holdings: The Court held that the revision order under section 263 was erroneous and prejudicial to the interests of the assessee and reversed the PCIT's directions. A key legal principle reaffirmed is that revision under section 263 cannot be exercised merely because the Revenue disagrees with the AO's assessment if the AO has conducted a proper inquiry and the assessment is not erroneous in law or on facts. On the issue of business entity conversion, the Court stated: "judicial discipline requires us to follow hon'ble higher judicial forum's adjudication than that of a learned coordinate bench," thereby underscoring the binding nature of superior court precedents over coordinate bench rulings. Regarding section 80IC(4), the Court clarified that the bar applies only where the eligible unit is formed by splitting up or reconstruction of an existing business or transfer of previously used machinery, and since these conditions were not met, the deduction remains intact. In conclusion, the Court allowed the assessee's appeal, holding that the AO's assessment under section 143(3) was valid, and the revision under section 263 was unwarranted and set aside accordingly.
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