2022 (8) TMI 1359 - AT - Income Tax

Revision u/s 263 - As per PCIT AO failed to verify the appellants claims related current repairs and maintenance of machinery current repairs and maintenance of building and deduction of the interest out of the business income of the assessee - PCIT further observed that the copy of ledger account filed by the assessee shows that substantial amounts have been reflected in the account which do not seem to be in the nature of repair and maintenance - HELD THAT - In the present case the assessee s claimed expenses under the head current repairs and maintenance of machinery current repairs and maintenance of building and interest claimed on creditors was accounted for in the ledger produced for verification during the course of scrutiny assessment proceedings u/s 143(3) and 154 before the AO and duly stands verified to his satisfaction. PCIT has merely stated that the AO has failed to make necessary enquiry and investigation however he has not specified the particular head of the account or the expense with the support of the corroborative evidences being brought on record to hold that how the assessment order was to be erroneous and prejudicial to the interest of the revenue. In our view such vague observation made by the PCIT merely doubting the assessment proceedings cannot hold the assessment order erroneous and prejudicial to the interest of the Revenue and that to base on the audit objection in particular. Assessing Authority has made enquiry about the expenses claimed by the appellant assessee in respect of current repairs and maintenance of machinery current repairs and maintenance of building and interest claimed during the course of assessment proceedings as well as 154 proceedings. The AO was satisfied from the reply of the assessee and after consideration of the reply the AO has filed the proceedings u/s 154. The observation of the PCIT that no enquiries or verification were made is factually incorrect - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Legality of the order passed under Section 263.
3. Assumption of jurisdiction by the Principal Commissioner of Income Tax (Pr. CIT).
4. Validity of proceedings under Section 154/155.
5. Enquiries and verifications by the Assessing Officer (AO).
6. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:
The assessee contended that the Pr. CIT erred in law by assuming jurisdiction under Section 263 of the Income Tax Act, 1961. The order passed under Section 263 directing the AO to pass a fresh order after necessary enquiries/investigations was deemed illegal and bad in law. The Tribunal observed that the Pr. CIT assumed jurisdiction based on the failure of the AO to make necessary enquiries and verifications regarding the assessee's claims on repairs and maintenance expenses and interest on deposits. However, the Tribunal found that the AO had indeed conducted sufficient enquiries during the assessment proceedings.

2. Legality of the order passed under Section 263:
The assessee argued that the assessment order under Section 143(3) was neither erroneous nor prejudicial to the interest of revenue. The Tribunal noted that the Pr. CIT's order under Section 263 was based on the assumption that the AO did not conduct proper enquiries. However, the Tribunal found that the AO had made adequate enquiries and verifications, and the Pr. CIT's order was based on mere doubts without corroborative evidence. The Tribunal held that the Pr. CIT's order was not in accordance with the law and quashed it.

3. Assumption of jurisdiction by the Principal Commissioner of Income Tax (Pr. CIT):
The Tribunal observed that the Pr. CIT assumed jurisdiction under Section 263 based on the assumption that the AO did not make necessary enquiries. However, the Tribunal found that the AO had conducted sufficient enquiries and verifications during the assessment proceedings. The Tribunal held that the Pr. CIT's assumption of jurisdiction was not justified and quashed the order passed under Section 263.

4. Validity of proceedings under Section 154/155:
The assessee contended that the proceedings initiated under Section 154/155 on the issue of taxability of repair and maintenance expenses and interest on deposits implied that the AO had applied his mind during the assessment proceedings. The Tribunal noted that the AO had initiated proceedings under Section 154 based on audit objections and had duly considered the issues raised. The Tribunal found that the AO had made sufficient enquiries and verifications, and the Pr. CIT's order under Section 263 was not justified.

5. Enquiries and verifications by the Assessing Officer (AO):
The assessee argued that the AO had made necessary enquiries and verifications regarding the expenses claimed on repairs and maintenance of machinery, building, and interest on deposits. The Tribunal observed that the AO had issued notices under Section 142(1) and had received detailed replies from the assessee. The Tribunal found that the AO had conducted sufficient enquiries and verifications and that the Pr. CIT's order under Section 263 was based on mere doubts without corroborative evidence.

6. Condonation of delay in filing the appeal:
There was a delay of 227 days in filing the appeal against the order passed under Section 263. The assessee explained the delay due to the death of their Chartered Accountant, who was handling their tax matters. The Tribunal found the explanation to be bona fide and condoned the delay, allowing the appeal to be heard on merits.

Conclusion:
The Tribunal concluded that the Pr. CIT's order under Section 263 was not justified as the AO had made sufficient enquiries and verifications during the assessment proceedings. The Tribunal quashed the order passed under Section 263 and allowed the appeal filed by the assessee. The Tribunal also condoned the delay in filing the appeal due to the bona fide reasons provided by the assessee.