2017 (1) TMI 1635 - HC - Income Tax

Revision u/s 263 - allowability of the claims of expenditure - error arises in the order of assessment that causes prejudice to the revenue - Held that - The power u/s 263 is a precise power that has to be exercised by the Commissioner only in appropriate cases where an error arises in the order of assessment that causes prejudice to the revenue. In the present case, AO having noticed the claims, calls for material in support thereof. The decision to allow the claims is made after due verification by the officer and is a plausible view in law. In exercising power of revision u/s 263, the CIT essentially seeks to substitute his own conclusions upon the view taken by the assessing officer at the time of assessment. This is impermissible in the context of section 263. As in the case of Malabar Industrial Co Ltd vs CIT (2008 (2) TMI 579 - KARNATAKA HIGH COURT) has settled the position that if the assessing officer has taken a view at the time of assessment based on materials, the CIT cannot seek to revise the view taken merely because he disagrees with it. This does not constitute an error for the purposes of section 263. Where two views are possible in relation to a matter, and the assessing officer has adopted one such view, the CIT cannot, by exercise of power u/s 263 impose the other view upon the assessing officer. - Decided in favour of the assessee.

Summary

Issues:
- Whether the tribunal was right in setting aside the revision order passed by the CIT under section 263 of the Income Tax Act.
- Whether the tribunal was right in holding that the CIT had merely set aside the orders of the assessment without any adverse finding about the claims of the assessee.

Analysis:
1. Background: The case pertains to the assessment year 2010-11 where the assessing authority accepted the claims made by the company, which owns and manages a four-star hotel, regarding expenditure incurred on renovation and preliminary expenses.

2. Revision Order by CIT: The Commissioner of Income Tax (CIT) invoked section 263 of the Income Tax Act, claiming that the claims of expenditure were not adequately examined by the assessing officer, leading to an erroneous assessment prejudicial to the revenue. Despite detailed explanations and supporting documents provided by the assessee, the CIT set aside the assessment for re-computation.

3. Tribunal's Decision: The Income Tax Appellate Tribunal set aside the CIT's revision order, citing lack of jurisdiction and failure to meet statutory requirements. The Department appealed against this decision.

4. Legal Provisions: Section 263 of the Income Tax Act empowers the CIT to revise orders prejudicial to revenue only if they are both erroneous and prejudicial. The CIT's revision must be based on valid grounds and cannot substitute the assessing officer's reasonable conclusions.

5. Assessee's Claims: The company substantiated its claims with detailed explanations, materials, and legal precedents supporting the allowability of renovation and deferred revenue expenditures. The assessing officer's acceptance of these claims after due verification was deemed valid.

6. Supreme Court Precedent: Referring to the Supreme Court's decision in Malabar Industrial Co Ltd vs CIT, it was emphasized that the CIT cannot revise an assessment merely due to a disagreement with the assessing officer's view, especially if the officer's decision is based on materials and within the scope of the law.

7. Final Verdict: The High Court upheld the tribunal's decision, ruling in favor of the assessee and dismissing the appeal by the Department. The substantial questions of law were resolved in favor of the assessee, emphasizing that where two reasonable views exist, the CIT cannot impose a different view through a revision under section 263.

In conclusion, the judgment highlights the importance of adherence to legal provisions, adequate examination of claims, and the limitations on the CIT's revisionary powers under section 263 of the Income Tax Act.