2012 (12) TMI 632 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - interest on electricity duties, water charges and electricity duty for the AY 2006-07 & for the AY 2007-08 also considered the issue with respect to amounts charged to accounts pending finalization of the payment of salary/wages - Held that - The issue being subjudice the assessee being governed by the Accounting Standard under the Companies Act was burdened to provide for the accrued liability when the assessee has pointed out that there was no contingent liability provided in the impugned AYs. Provision for the pay revision is provided on the basis of labourers executing the work and labour Union in the Industrial Sectors. The enhanced pay bill which will be assigned to them later can be provided for by the assessee in view of it not being contingent but accrued on the basis of services rendered by the recipients. The change or credit arisen out of a contingency which at the time of occurrence could not be estimated correctly shall not construe the correction or error and change of asset and as such, such item shall not be treated as disallowable u/s.37. The Revenue cannot take both the stands for declining to allow the prior period expenses in the impugned AYs nor consider crystallization of the liabilities provided in the impugned AYs for the AYs just because pay revision occurs every five years applicable to the respective years in accordance with the price index. Therefore, the considered view that the issues raised by the CIT have either dealt with by us in assessee s own case or the AO in the impugned AYs against which no loss to the revenue has been pointed out on a view of the CIT alone can be considered for assuming jurisdiction u/s.263. Mere change of opinion by the CIT has to have basis of an error having been committed coupled with the fact that it was prejudicial to the interest of revenue - the orders of the CIT passed u/s.263 quashed for the impugned AYs under consideration - in favour of assessee.

Summary

Issues:
- Jurisdiction of CIT under section 263 for Assessment Years 2006-07 and 2007-08
- Disallowance of interest on electricity duties, water charges, and provisions for salary/wages

Analysis:
1. Jurisdiction of CIT under section 263 for Assessment Years 2006-07 and 2007-08:
The appeals arose from orders under section 263 of the Income-tax Act, 1961 by the CIT for the Assessment Years 2006-07 and 2007-08. The common issues raised by the assessee appellant pertained to interest on electricity duties, water charges, and provisions for salary/wages. The CIT assumed jurisdiction under section 263 for both years based on these issues.

2. Disallowance of interest on electricity duties, water charges, and provisions for salary/wages:
For the Assessment Year 2006-07, the CIT's jurisdiction under section 263 was challenged as the issues had been previously adjudicated by the Assessing Officer and CIT(A). The CIT's attempt to reexamine these issues was deemed unwarranted as the matters had already been settled through due process. Regarding the Assessment Year 2007-08, the CIT disallowed the provision for salary/wages pending revision, considering it not allowable under section 37.

3. Detailed Analysis:
- The assessee, a Public Sector Undertaking, had majority shares held by the Government of India. Assessments were conducted for the respective years under section 143(3), addressing errors highlighted by the CIT as prejudicial to revenue. The CIT's contention that certain provisions were disallowable under section 43B was challenged by the assessee, citing legal precedents and the Assessing Officer's previous decisions.

- The CIT's disallowance of interest on electricity duties and water charges was contested by the assessee, arguing that these were statutory liabilities and not contingent provisions. The CIT's attempt to challenge matters already under judicial scrutiny was deemed unjustified.

- The provision for salary/wages pending revision was also a point of contention. The CIT considered it a contingent liability, while the assessee argued it was an accrued liability based on services rendered. The CIT's stance on disallowance under section 37 was refuted by the assessee, highlighting the legality of the provisions made.

4. Conclusion:
After considering the arguments and reviewing the orders, the Appellate Tribunal held that the CIT's jurisdiction under section 263 was not justified for the issues raised. The Tribunal found no error or prejudice to revenue in the decisions made by the Assessing Officer and higher authorities. Therefore, the orders passed by the CIT under section 263 for the relevant Assessment Years were quashed, and the appeals of the assessee were allowed.