2010 (1) TMI 967 - AT - Income Tax

Revision u/s 263 - Allowability of advertisement and publicity expenses - lack of enquiry - as per CIT business of the assessee did not commence and, therefore, the expenses claimed by the assessee with regard to advertisement and publicity could not be claimed in the year under consideration and AO while framing the assessment did not examine this aspect or he has allowed the claim of the assessee in hasty manner, therefore, the assessment order is erroneous as well as prejudicial to the interests of the revenue HELD THAT - The law regarding applicability or otherwise of section 263 is well settled. In order to invoke the provisions of section 263 the order passed by the AO should not only be erroneous but should also be prejudicial to the interests of the Revenue. Thus, both the conditions should be fulfilled simultaneously. If any one of them is absent, it will be held that the provisions of section 263 were not lawfully invoked. An incorrect assumption of facts, or an incorrect application of law can only satisfy the requirement of the order being erroneous . Thus, there should be an incorrect assumption of facts by the AO or there should be an incorrect application of law to bring the order of the AO within the category of its being erroneous . In the present case it is clear that the business of the assessee was set up with the acquisition of land which even according to lease deed was acquired with effect from 22-12-2003. The genuineness of the lease deed cannot be doubted as the same is executed between the assessee and the President of India through Administration Office of the Delhi Development Authority. A question was raised by the assessing officer and reply was given by the assessee to contend that the advertisement and publicity expenses are allowable in view of the decision of Sarabhai Management Corporation Ltd. 1975 (8) TMI 39 - GUJARAT HIGH COURT and such proposition of law was accepted by the assessing officer. Thus, the view taken by the assessing officer cannot be said to be erroneous which will render the assessment order as erroneous. Squared up credit in the name of M/s. DLF Universal Ltd - When the creditor is known and its existence is established by furnishing permanent account number and other details with confirmation then unless any material is brought on record to doubt such particulars, the credit has to be accepted and this is what was done by the assessing officer. CIT even could not bring any material on record to say that such squared up credit in the name of group concern of the assessee was not genuine. When particulars were furnished to the assessing officer and he has applied his mind then the legal proposition and the decision taken by us with regard to allowability or otherwise of advertisement and publicity expenses will also equally apply to this aspect. Therefore, on this aspect also the learned Commissioner of Income-tax was wrong in invoking his power under Section 263. Whether it is a clear case where no enquiry at all has been done by the assessing officer? - Probably on account of short period involving commencement of assessment proceeding and completion of assessment proceeding bears in the mind of the Commissioner of Income-tax to hold that the assessing officer has done the assessment in hasty manner without making proper enquiry but that assumption of the learned Commissioner (Appeals) is not correct as when an issue has been raised and a proper reply of the same is given then it cannot be presumed that either the issue has been dealt in haste and without making enquiry unless it is demonstrated that after raising the query and after replies and details being placed on record the decision taken was incorrect. In any case the present case it is not a case where no enquiry was made by the assessing officer and at best, it can be the case of the department that it is a case of inadequate enquiry. As decided in SUNBEAM AUTO LTD. 2009 (9) TMI 633 - DELHI HIGH COURT if there was any enquiry, even inadequate, that would not by itself give an occasion to the Commissioner of Income-tax to pass orders under Section 263 of the Act merely because he has different opinion in the matter. Thus the order of the Commissioner of Income-tax under Section 263 cannot be held valid as present case is not a case of lack of enquiry - Assessee appeal allowed.

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act, 1961.
2. Allowability of Advertisement Expenses as Revenue Expenditure.
3. Examination of Squared Up Advances for Purchase of Land.
4. Adequacy of Enquiry by the Assessing Officer.

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act, 1961:
The primary issue in this appeal is whether the Commissioner of Income-tax (CIT) was justified in invoking Section 263 of the Income Tax Act, 1961. The assessee contended that the CIT erred in law and facts by invoking Section 263, arguing that the original assessment order was neither erroneous nor prejudicial to the interests of the revenue. The Tribunal emphasized that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the interests of the revenue. An incorrect assumption of facts or incorrect application of law can render an order erroneous. However, in this case, the Tribunal found that the Assessing Officer (AO) had made proper inquiries and accepted the assessee's claims based on detailed submissions and legal precedents.

2. Allowability of Advertisement Expenses as Revenue Expenditure:
The CIT argued that the advertisement expenses incurred before the commencement of business should not be allowed as revenue expenditure. The assessee countered that these expenses were necessary for attracting prospective clients and were incurred after acquiring the land, marking the commencement of business. The Tribunal referred to various judicial precedents, including decisions of the Supreme Court and High Courts, to conclude that in real estate business, the acquisition of land signifies the commencement of business. Since the land was acquired in December 2003, the advertisement expenses incurred thereafter were allowable as revenue expenditure. The AO had considered these aspects during the assessment, and thus, the order could not be deemed erroneous.

3. Examination of Squared Up Advances for Purchase of Land:
The CIT also questioned the squared-up advances, alleging that no details or confirmations were filed. The assessee provided detailed submissions, including the name, address, and PAN of the party (DLF Universal Ltd.) from whom advances were taken. The Tribunal noted that the AO had examined these details during the assessment proceedings, and the advances were duly reflected in the accounts. The AO's acceptance of these details could not be considered erroneous or prejudicial to the interests of the revenue, as the genuineness of the transactions was established.

4. Adequacy of Enquiry by the Assessing Officer:
The CIT contended that the AO completed the assessment in haste without making proper inquiries. The Tribunal observed that the AO had raised specific queries and received detailed replies from the assessee. The Tribunal emphasized the distinction between "lack of enquiry" and "inadequate enquiry," citing the Delhi High Court's decision in CIT v. Sun Beam Auto Ltd. It was held that an inadequate enquiry does not justify invoking Section 263 if the AO had applied his mind and made a reasoned decision. The Tribunal concluded that the AO had conducted adequate inquiries, and the CIT's assumption of hasty assessment was incorrect.

Conclusion:
The Tribunal held that the CIT's invocation of Section 263 was not justified as the original assessment order was neither erroneous nor prejudicial to the interests of the revenue. The AO had made proper inquiries and accepted the assessee's claims based on detailed submissions and legal precedents. Consequently, the order passed by the CIT under Section 263 was quashed, and the appeal filed by the assessee was allowed.

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