2012 (7) TMI 925 - AT - Income Tax

Summary

Issues Involved:
1. Action u/s 263 by the CIT.
2. Eligibility for exemption u/s 10BA of the IT Act.

Summary:

1. Action u/s 263 by the CIT:

The assessee filed a return declaring an income of Rs. Nil, and the assessment was framed u/s 143(3) of the IT Act, 1961. The AO allowed a deduction u/s 10BA, considering the assessee's business as manufacturing and trading of handmade articles. The CIT exercised powers u/s 263, observing that the assessee was engaged in trading activities, which disqualified it from exemption u/s 10BA. The CIT issued a show-cause notice and, after considering the assessee's reply, concluded that the AO's order was erroneous and prejudicial to the interest of Revenue. The CIT set aside the AO's order and directed a reassessment.

2. Eligibility for exemption u/s 10BA of the IT Act:

The assessee contended that it was engaged in manufacturing and processing activities, not trading, and fulfilled the conditions of s. 10BA. The assessee provided evidence of manufacturing activities and argued that the AO had thoroughly examined the case before allowing the deduction. The Tribunal noted that the AO had taken a possible view, supported by similar cases and legal precedents. The Tribunal referenced the Supreme Court's ruling in CIT v. Max India Ltd., which stated that an AO's order cannot be considered erroneous if it is one of the possible views permissible in law. Consequently, the Tribunal set aside the CIT's order, ruling that the AO's assessment was neither erroneous nor prejudicial to the interest of Revenue.

Conclusion:

The appeal was allowed, and the CIT's order u/s 263 was set aside, affirming the AO's original assessment and deduction u/s 10BA.