2013 (9) TMI 267 - AT - Income Tax

Revision u/s 263 by CIT Revision on basis of objection raised in the Audit - Held that - Twin condition of (i) Order to be erroneous and (ii)Order to be prejudicial to the Revenue, to be satisfied - Commissioner of Income Tax while passing the order under section 263 of the Act had not even taken any note of the objection of the assessee that the figures appearing in the show cause notice do not match with the figures reflected in the Balance Sheet of the assessee. The basis of such figures in the show cause notice issued by the Commissioner of Income Tax is not clear and in the absence of the same, no merit in invoking of jurisdiction by the Commissioner of Income Tax under section 263 of the Act specially in cases where the Assessing Officer had made due enquiries during the course of assessment proceedings and had applied his mind before passing the assessment order Commissioner of Income Tax in the present case had also initiated the proceedings under section 263 of the Act on the basis of the audit objections. Show cause notice was issued in the present case for non-deduction of tax at source, out of certain expenses incurred by the assessee and order passed by the Commissioner of Income Tax under section 263 of the Act directing the Assessing Officer to re-determine the income of the assessee by applying a rate other than the rate applied by the Assessing Officer, being without jurisdiction, is not tenable in law - The provisions of section 263 of the Act are clear and absolute that the power is to be exercised by the Commissioner of Income Tax from the examination of the records of the proceedings under the Act. The explanation under section 263 of the Act defines records as all records relating to any proceedings under the Act available at the time of examination by the Commissioner. The audit objections under no circumstances can be called as record empowering the Commissioner of Income Tax to exercise jurisdiction under section 263 of the Act. Further it is apparent that the Commissioner of Income Tax has initiated the revision proceedings only on the basis of Audit Objection. Such exercise of power under section 263 of the Act is not tenable in law. The grounds of appeal raised by the assessee are thus allowed Decided in favor of Assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Jurisdiction under section 263 of the Income Tax Act, 1961.
3. Capitalization of interest under section 36(1)(iii).
4. Allocation of expenses to the 10-B Unit.
5. Disallowance under section 14A.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed 40 days late. The assessee explained that the Finance Manager was unaware of the possibility of filing an appeal against the order under section 263 until a notice under section 142(1) was received. The Tribunal condoned the delay considering the circumstances.

2. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The Commissioner of Income Tax (CIT) invoked section 263, deeming the assessment order erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that for section 263 to be invoked, the order must be both erroneous and prejudicial to the Revenue. The Tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, which clarified that non-application of mind or lack of enquiry by the Assessing Officer (AO) could justify invoking section 263.

3. Capitalization of Interest under Section 36(1)(iii):
The CIT observed discrepancies in the figures related to capital work in progress and interest capitalization. The assessee argued that investments were made from its own funds, except for plant and machinery, for which interest was capitalized. The Tribunal noted that the AO had made due enquiries and accepted the assessee's explanation, finding no merit in the CIT's invocation of section 263 based on audit objections and unverified figures.

4. Allocation of Expenses to the 10-B Unit:
The CIT contended that common expenses like Director's and Auditor's remuneration should have been allocated to the exempt unit under section 10B. The assessee provided that these expenses were discussed during the assessment, and no adverse action was taken. The Tribunal found that the AO had applied his mind and made necessary enquiries, thus rejecting the CIT's claim of non-application of mind.

5. Disallowance under Section 14A:
The AO had disallowed Rs. 75.77 lakhs under section 14A, reduced to Rs. 11.48 lakhs by the CIT(A), and deleted by the Tribunal. The CIT argued that the AO failed to consider certain figures in the Balance Sheet. The Tribunal held that the AO had made detailed enquiries and applied his mind, rendering the CIT's invocation of section 263 unjustified.

Conclusion:
The Tribunal quashed the CIT's order under section 263, emphasizing that the AO had conducted due enquiries and applied his mind in the assessment proceedings. The Tribunal also noted that the CIT had relied on audit objections without independent verification, which was not tenable for invoking section 263. The appeal filed by the assessee was allowed.