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2016 (2) TMI 1148 - AT - Income TaxRevision u/s 263 - Understatement of receipts - Held that - When the ground of revision u/s. 263 is not mentioned in the show cause notice issued u/s. 263 that issue cannot be the subject matter of revision proceedings in the order passed u/s. 263. Hence the addition proposed towards understatement of receipt of 1, 20, 49, 196/- is not in accordance with law. Accordingly the order passed by the ld.CIT u/s. 263 is modified to this extent. Addition u/s 40(a)(ia) - addition towards various expenses for non-compliance of TDs provisions - applicability of second proviso to section 40(a)(ia) - Held that - We find that if the payees have included the subject mentioned receipts in their books/returns of income then second proviso to section 40(a)(ia) of the Act should have to be invoked and no disallowance u/s. 40(a)(ia) of the Act could be made. . We also find that the provisions of section 40(a)(ia) of the Act has been held to be retrospective in operation by the decision of the Hon ble Delhi High Court in the case of CIT vs Ansal Land Mark Township (P) Ltd reported in (2015 (9) TMI 79 - DELHI HIGH COURT). Thus we deem it fit and appropriate to set aside the issue to the file of the ld.AO to decide the impugned issue u/s. 40(a)(ia) in the light of applicability of second proviso to section 40(a)(ia) as mentioned herein above and in the light of said decision of the Hon ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd (supra).
Issues Involved:
1. Validity of proceedings initiated under section 263 of the Income Tax Act. 2. Disallowances proposed under section 40(a)(ia) for various expenses. 3. Additions towards understatement of receipts not included in the show-cause notice under section 263. Issue-wise Detailed Analysis: 1. Validity of Proceedings Initiated Under Section 263: The assessee challenged the validity of the proceedings initiated under section 263 of the Income Tax Act, arguing that the Assessing Officer (AO) had duly applied his mind and completed the assessment after examining all the issues. The assessment was completed under section 143(3) determining the assessed income at Rs. 6,04,831 against the returned income of Rs. 4,97,664. The assessee contended that the AO had relied on the decision of the ITAT Vizag Special Bench in the case of Merilyn Shipping Transport, which was in favor of the assessee, and that the CIT could not invoke section 263 based on subsequent judgments by various High Courts, including the Calcutta High Court. The Tribunal found merit in the assessee's argument, stating that the CIT could not revise the assessment based on subsequent legal developments. 2. Disallowances Proposed Under Section 40(a)(ia): The CIT proposed disallowances under section 40(a)(ia) for the following expenses due to non-compliance with TDS provisions: - Machinery hire charges: Rs. 33,88,282 - Dewatering charges: Rs. 1,83,956 - Wages and labor charges: Rs. 5,13,966 and Rs. 43,94,971 - Transportation charges: Rs. 1,91,600 The assessee argued that if the payees had included these receipts in their returns, the second proviso to section 40(a)(ia) should be invoked, which has been held to be retrospective by the Delhi High Court in CIT vs. Ansal Land Mark Township (P) Ltd. The Tribunal agreed, setting aside the issue to the AO to decide in light of the second proviso and the Delhi High Court's decision, allowing the assessee to adduce fresh evidence. 3. Additions Towards Understatement of Receipts Not Included in Show-Cause Notice: The CIT directed the AO to add Rs. 1,20,49,196 as understatement of receipts, which was not included in the show-cause notice under section 263. The assessee argued that this issue was raised for the first time during the hearing and was not part of the initial show-cause notice. The Tribunal held that issues not included in the show-cause notice could not be considered in the order passed under section 263, as it would violate principles of natural justice. The Tribunal relied on precedents like Apollo Tyres Ltd vs. ACIT and Maxpak Investment Ltd vs. ACIT, which held that grounds not mentioned in the show-cause notice could not be the basis of revision. Consequently, the Tribunal modified the CIT's order, excluding the addition of Rs. 1,20,49,196. General Grounds: The general grounds raised by the assessee did not require adjudication. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, setting aside the issue of disallowances under section 40(a)(ia) to the AO for reconsideration in light of the second proviso and relevant judicial precedents. The addition towards understatement of receipts was excluded from the CIT's order as it was not part of the show-cause notice. The order was pronounced in open court on 03-02-2016.
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