2012 (9) TMI 1203 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT-I, Coimbatore u/s 263 of the Income Tax Act, 1961.

Grounds raised by the assessee:
1. Challenge to setting aside AO's order without finding it erroneous u/s 263.
2. Dispute over validity of CIT's jurisdiction u/s 263 regarding pre-operative expenditure.
3. Vagueness in direction for setting aside assessment.
4. Overall challenge to CIT's order u/s 263 as unsustainable.

Assessee's arguments:
The CIT erred in invoking u/s 263 as pre-operative expenditure was not covered by section 35D, hence not subject to amortization. The CIT's notice was based on incorrect application of section 35D, leading to wrong tax treatment of trial run income. The CIT acknowledged pre-operative expenses were not under section 35D but directed verification of expenses, creating uncertainty in tax liability calculation. Assessee argued that if trial run receipts are considered income, corresponding expenses should be deducted to avoid surplus.

CIT/DR's position:
Supported CIT's order, highlighting that trial run receipts were not reflected in Profit & Loss Account, hence not taxed, and were offset against pre-operative expenses.

Judgment and Analysis:
The CIT initiated proceedings u/s 263 due to alleged omission of assessing trial run income as taxable. However, after considering submissions, it was found that a portion of the income did not have an assessable element and the rest had corresponding expenses. The CIT's order emphasized the need to verify the expenses for correct tax assessment. The Tribunal noted the absence of a show cause notice specifically for the expenses in question. Furthermore, the CIT did not dispute the assessee's claim regarding the nature of the income. Consequently, the Tribunal found the CIT's order unsustainable as no error was identified in the assessee's submissions. Therefore, the order u/s 263 was canceled, and the assessee's appeal was allowed.

Conclusion:
The Tribunal ruled in favor of the assessee, canceling the CIT's order u/s 263 and allowing the appeal. The decision was based on the lack of jurisdiction in the CIT's order and the absence of errors in the assessee's submissions regarding the disputed income.