The Jaipur bench of the Income Tax Appellate Tribunal ( ITAT ) overturned the revision order issued by the Principal Commissioner of Income Tax ( PCIT ), which had disallowed Income Tax Deduction under Section 10AA of the Income Tax Act, 1961. It was also lacked independent view of the PCIT.
The bench noted that “There is no bar that deduction u/s. 10AA will not be permitted if the management of two companies is similar. Items were not transferred from its Mahapura Unit to Sitapura SEZ unit, even otherwise, some raw-materials (gemstones) were sold which were used for manufacturing by SEZ unit, even otherwise there is no bar under the Act in order to claim deduction u/s. 10AA.”
The company had claimed a deduction of Rs. 3,90,12,873/- under Section 10AA. The assessment under Section 143(1) was completed on August 5, 2016, with a total income of Rs. 4,68,02,540/-. Subsequently, a survey under Section 133A was conducted at the business premises of the assessee on August 17th and 18th, 2017.
During the proceedings, it was discovered that another group concern of the assessee, M/s. Pinkcity Colorstone Pvt. Ltd., had strong profits but was later closed, with its assets rented to M/s. Pinkcity Jewel House Pvt. Ltd., the assessed company, sharing the same management and shareholders. The case was then reopened under Section 147/148 of the Income Tax Act, alleging tax avoidance.
The counsel for the assessee argued that the PCIT did not consider the fact that assessments for A.Y. 2011-12 to 2015-16 were reopened based on the survey. Furthermore, it was noted that in the reopened assessment, the assessing officer had examined the claims of the assessee, rendering the invocation of Section 263 by the PCIT redundant based solely on an audit objection.
According to the bench, the PCIT without dealing with the contention summarily passed an order by holding that the assessee is not eligible to claim benefit under Section 10AA of the Income Tax Act and also hold that there is lack of enquiry by the AO on the points upon which the assessment was reopened.
The ITAT bench, comprising Dr. S. Seetha Lakshmi ( Judicial Member ) and Rathod Kamlesh Jayantbhai ( Accountant Member ), observed that the revisionary proceeding under Section 263 was solely based on an audit objection, lacking independent judgment from the PCIT. Moreover, considering that the claim had been accepted upon reopening the case after the survey, the tribunal quashed the PCIT’s order.
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