2022 (12) TMI 1303 - AT - Income Tax

Revision u/s 263 - notice to a non-existent entity - deduction u/s.80IC was wrongly allowed as it appears that the assessee firm was not carrying out manufacturing activities at the factory premises - HELD THAT - Since the notices issued by the revenue authorities were after the date of closure of the business they have been rightly returned answered. Since the closure of the business as no operations could be carried and no employees were available at the premises of the factory the notices have been returned. Hence it cannot be concluded that during the financial year period from 01.04.2011 to 31.12.2012 was not in existence. The derivation of the ld. PCIT cannot be held to be correct. Had the manufacturing activities were carried out as on date the notices could have been served.From the record it is clear that the manufacturing activities were not being carried out from 31.12.2012 and the cancellation of registration on 04.03.2013 was also on record. Hence the notices could not be served and it is a fact that the manufacturing activity was not carried out as on the date of issue of notice. It certainly does not give raise to a conclusion that there was no manufacturing activity during the year 01.04.2011 to 31.12.2012. It is not worthy to conclude that the permanent closure of the business was done w.e.f. 31.03.2014. It is a fact on record that the permanent closure of the business was done w.e.f. 31.03.2014 and polynomial interpolation cannot be resorted to conclude that the assessee was not into manufacturing during the period 01.04.2011 to 31.12.2012. The authorization given by the assessee was not affixed by requisite court fee. Hence invalid. The validity or invalidity of the letter of authority cannot be a matter of proceedings u/s. 263 especially when the assessee reaffirmed the details filed by the AR.The assessee sold products to only two concerns at Bangalore namely M/s. Creative International Pvt. Ltd. and M/s. Texport Overseas Pvt. Ltd. The bills have been duly examined. The transport bills have been duly filed before the AO which consists of South India Freight Carriers and Uttarakhand Logistics. The transport charges have been paid by the recipient. The central Sales Tax declarations/ C Form have been duly filed. Hence there is no reason to suspect the sales without bringing any material to prove that the bills are phoney or the entities which received the goods are bogus. Hence the conclusion of the ld. PCIT cannot be supported. The sale invoices to those two concerns do not give any information as to how the goods have been sent to Bangalore from Roorkee. The sale invoices clearly shows that the goods have been sent by freight carrier companies named above and the recipient to pay the freight charges. The raw materials were also purchased from Bangalore which do not give any credence to the factum of purchase. Factually incorrect. No goods have been purchased from Bangalore. The Poly Yarn was purchased from Delhi and Erode The expenses incurred on account of electricity wages do not suggest any manufacturing activity carried out at the premises. The amounts have been duly examined by the AO as per the observation at page no. 2 of the Assessment Order. The electricity bills and invoices details have been duly examined and accepted by the AO with reference to books of accounts and bills. In the absence of any remark no adverse conclusion could be drawn with regard to the provisions of Section 263 - Appeal of the assessee is allowed.

Summary

Issues involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961
2. Existence of erroneous order causing prejudice to revenue
3. Validity of notice issued to non-existent entity
4. Direction of Principal Commissioner of Income Tax
5. Allowance of deduction under Section 80IC
6. Manufacturing activities at the factory premises

Detailed analysis:
1. The appellant challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961, arguing that the conditions precedent for assuming jurisdiction were absent as there was no erroneous order causing prejudice to the revenue. The appellant contended that the order allowing deduction under Section 80IC was based on detailed enquiry by the Assessing Officer, and any further direction by the PCIT would amount to a change of opinion, rendering the order bad in law. The appellant also raised objections regarding the notice issued to a non-existent entity and the direction to cancel the assessment done under Section 143(3) for a fresh assessment, arguing that the conclusions drawn by the PCIT were erroneous and not in accordance with the law.

2. The PCIT passed the order under Section 263 based on a proposal that the deduction under Section 80IC was wrongly allowed due to the absence of manufacturing activities at the factory premises. The PCIT issued show cause notices, which were returned unserved, leading to further inquiries and representations by the appellant. The PCIT, unsatisfied with the explanations provided, concluded that the manufacturing activities were not being carried out, citing various reasons such as unserved notices, lack of information in sale invoices, and expenses not indicative of manufacturing activity. Consequently, the PCIT annulled the assessment order of the Income Tax Officer, leading to the appellant's appeal.

3. During the appeal hearing, it was revealed that the firm's business had been closed, as evidenced by a dissolution deed, and the closure was duly intimated to the tax authorities. The notices issued post-closure were rightly returned, as the business was non-operational. The appellant's explanations regarding the manufacturing activities, sale transactions, and expenses were found to be valid, with supporting evidence provided to refute the PCIT's conclusions. The Appellate Tribunal held that the PCIT's order under Section 263 could not be affirmed based on the facts and circumstances of the case, ultimately allowing the appeal of the assessee.

In conclusion, the Appellate Tribunal overturned the PCIT's order, emphasizing the importance of valid jurisdiction, proper assessment of erroneous orders, and adherence to legal procedures in tax matters.