2016 (1) TMI 1032 - AT - Income Tax

Revision u/s 263 - claim of allowance under the provisions of sec. 40(a)(ia) was not examined by the AO during the course of assessment proceedings - Held that - The assessee could not demonstrate before us that the issue was examined by the AO during the course of assessment proceedings. It is settled principle of law that non-enquiry by the AO on an issue confers jurisdiction on the CIT to revise the assessment. The Hon ble jurisdictional High Court, in the case of CIT vs. Infosys Technologies Ltd.(2012 (1) TMI 76 - KARNATAKA HIGH COURT) following the judgment of Malabar Industrial Co. vs. CIT (2000 (2) TMI 10 - SUPREME Court), held that where deduction was allowed by the AO without indicating the basis, that could be considered as an order both erroneous and prejudicial to interests of revenue. When the ld.CIT remanded the matter to the AO to examine the issue afresh, it cannot be termed as beyond the jurisdiction of the CIT. Respectfully following the judgment of the Hon ble jurisdictional High Court in the case of Infosys Technologies Ltd.(supra), we hold that the ld.CIT(LTU) was justified in assuming jurisdiction u/s 263 of the Act and directing for de novo assessment. - Decided against assessee

Summary

Issues Involved:
- Jurisdiction under section 263 of the Income-tax Act, 1961
- Examination of allowance under section 40(a)(ia) by the Assessing Officer

Analysis:

Jurisdiction under section 263 of the Income-tax Act, 1961:
The appeal was directed against the order passed under section 263 of the Income-tax Act, 1961, for the assessment year 2008-09. The assessee raised various grounds of appeal challenging the jurisdiction of the Commissioner of Income-Tax and the sustainability of the order passed under section 263. The primary contention was that the assessment order was not amenable to the divisional jurisdiction under section 263. The Commissioner set aside the assessment order as the AO had failed to disallow a specific sum as no tax deduction was made. The assessee argued that the provisions of TDS were not applicable to the impugned provision as it was made on an ad hoc basis without reference to any person. However, the Commissioner held that the AO had not examined this issue during the assessment proceedings, leading to the revision of the assessment order under section 263. The Tribunal upheld the Commissioner's decision, stating that non-enquiry by the AO on an issue confers jurisdiction on the Commissioner to revise the assessment. Citing the judgment of the jurisdictional High Court, it was established that the absence of reasons in the assessment order could be considered as an order both erroneous and prejudicial to the interests of revenue. Therefore, the Tribunal concluded that the Commissioner was justified in assuming jurisdiction under section 263 and directing a de novo assessment.

Examination of allowance under section 40(a)(ia) by the Assessing Officer:
The only issue considered by the Tribunal in the present appeal was whether the Commissioner was justified in assuming jurisdiction under section 263 based on the non-examination of the allowance under section 40(a)(ia) by the Assessing Officer. The Tribunal noted that the AO had not examined this specific issue during the assessment proceedings, which empowered the Commissioner to revise the assessment under section 263. The Tribunal relied on the judgment of the jurisdictional High Court, emphasizing the importance of reasons in the assessment order and the duty of the assessing authority to support conclusions with reasons. As the AO had allowed the deduction without indicating the basis, the order was deemed erroneous and prejudicial to the revenue's interests. Therefore, the Tribunal upheld the Commissioner's decision to set aside the assessment order for a fresh examination of the issue, affirming the jurisdiction under section 263.

In conclusion, the Tribunal dismissed the appeal of the assessee-company, upholding the Commissioner's jurisdiction under section 263 and the decision to direct a de novo assessment. The order was pronounced on January 20, 2016.