2014 (4) TMI 1053 - HC - Income Tax

Revision u/s 263 - whether deferred revenue expenditure should be allowed fully in one year or be deferred according to entries made by assessee in this regard? - whether the loss claimed by assessee was a genuine loss ? - whether it was revenue or capital loss? - Tribunal set aside the revision - Held that - CIT Amritsar in its notice dated 24th January 2000 sought response from respondent companies on the issues highlighted in the notice namely that loss claimed to have suffered on account of purchase and sale of non-convertible debentures was in fact deferred expenditure disentitling respondent company from any allowance on such loss in one year and that whether the loss claimed was revenue or capital loss. CIT Amritsar referred to Madras Industrial Investment Corpn. Ltd. case (1997 (4) TMI 5 - SUPREME Court ) in support of his opinion as regards deferred loss. Respondent companies submitted a detailed reply to the notice issued, controverting all factual aspects of the case reflected in the notice emphasizing that Madras Industrial Investment Corpn. Ltd. case (supra) was distinguishable on facts and not applicable to the controversy raised in notice. CIT Amritsar surprisingly in its order dated 21st March 2000, did not deal with detailed reply supported by reasons, submitted by respondent companies. Least that was expected of CIT Amritsar was to make reasonable and fair discussion of the reply, and material referred to in such reply and given reasons for recording disagreement with stand taken in the reply. Otherwise granting an opportunity to assessee as required under Section 263 of the Act would be reduced to an idle formality. This is what has been exactly done by CIT Amritsar. The mode and manner in which the matter has been dealt with is in gross violation of mandate of Section 263 of the Act. Tribunal (ITAT Amritsar) was right in holding that there were no compelling reasons for interference for the CIT Amritsar under Section 263, Income Tax Act - Decided in favour of assessee.

Summary

Issues:
1. Whether the Income Tax Appeals were admitted on substantial questions of law?
2. Whether the loss claimed by the companies was genuine and whether it was revenue or capital loss?
3. Whether the Commissioner of Income Tax, Amritsar, had the jurisdiction to set aside the assessment orders and direct re-examination of the matter?
4. Whether the order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue as per Section 263 of the Income Tax Act?
5. Whether the Tribunal was justified in setting aside the order of the Commissioner of Income Tax, Amritsar?

Issue 1: Admission of Income Tax Appeals
The High Court observed that the Income Tax Appeals had been pending for 12 years without a determination on whether any substantial question of law was raised during admission. The Court assumed that the Appeals were admitted based on substantial questions of law mentioned in the memoranda of appeals.

Issue 2: Nature of Loss Claimed
The companies involved in the appeals were engaged in the purchase and sale of securities, and the issue revolved around the genuineness of the loss claimed by them and whether it constituted revenue or capital loss.

Issue 3: Jurisdiction of Commissioner of Income Tax
The Commissioner of Income Tax, Amritsar, set aside the assessment orders and directed re-examination of the matter under Section 263 of the Income Tax Act. The issue raised was whether the Commissioner had the jurisdiction to take such action.

Issue 4: Erroneous Order by Assessing Officer
The Court analyzed whether the order passed by the Assessing Officer was erroneous and prejudicial to the interests of revenue as required under Section 263 of the Act. It was noted that the Commissioner failed to provide adequate reasons to conclude that the order was erroneous.

Issue 5: Tribunal's Decision
The Tribunal had set aside the Commissioner's order, and the High Court examined the Tribunal's decision. It was determined that the Tribunal's detailed discussion and conclusions were well-founded, and the reasons provided by the Tribunal for allowing the Appeals were valid.

In conclusion, the High Court dismissed the Appeals, holding in favor of the respondents based on the analysis of each issue. The Court affirmed the Tribunal's decision, stating that there were no compelling reasons for the Commissioner's interference under Section 263 of the Income Tax Act. Additionally, the Court upheld the Tribunal's findings that the law cited was not applicable to the case, and the Commissioner had not demonstrated the Assessing Officer's alleged shortcomings in examining documents and explanations.