2017 (8) TMI 372 - HC - Income Tax

Revision u/s 263 - disallowability of expenditure on account of sales tax - Compound Levy Scheme applicability - Held that - In the present case, once the assessee had shown that the sales appearing in the balance-sheet were inclusive of sales tax, there was no occasion to disallow the claim made by the assessee relating to payment of sales tax, on the basis of Compound Levy Scheme. The Revenue was unable to produce any material on record to substantiate that the assessee had excluded the amount of sales tax from the sales. Once that was so, it could not be said that the order sought to be revised was either erroneous or prejudicial to the interests of the Revenue. Thus, both the limbs of section 263 of the Act were not satisfied. Consequently, the exercise of revisional jurisdiction by the Commissioner of Income-tax under section 263 of the Act was unwarranted. In view of the above, it is concluded that no illegality or perversity could be shown by the learned counsel for the appellant-Revenue so as to hold that the assumption of revisional jurisdiction by the Commissioner of Income-tax under section 263 of the Act was justified. - Decided in favour of assessee.

Summary

Issues:
1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Allowability of sales tax expenditure claimed by the assessee.
3. Proper examination of the issue of sales tax expenditure by the Assessing Officer.

Jurisdiction of the Commissioner of Income-tax under section 263:
The appellant-Revenue challenged the order passed by the Tribunal under section 260A of the Income-tax Act, 1961, claiming substantial questions of law. The Commissioner of Income-tax found the assessment order under section 153A/143(3) to be erroneous and prejudicial to the Revenue's interests due to the allowance of sales tax expenditure by the Assessing Officer. The Commissioner issued a show-cause notice under section 263, setting aside the order and directing a fresh assessment. The Tribunal allowed the appeal of the assessee, stating that the Commissioner did not provide concrete findings and directed further inquiry by the Assessing Officer. The appellant-Revenue contended that the sales tax claimed by the assessee was inadmissible as the sales did not include sales tax, justifying the assumption of jurisdiction under section 263.

Allowability of sales tax expenditure:
The appellant-Revenue argued that the sales tax payment claimed by the assessee under the Compound Levy Scheme was inadmissible as the sales did not include sales tax. On the contrary, the counsel for the assessee contended that the sales tax paid was allowable under section 43B of the Act, as the sales appearing in the balance-sheet included sales tax. The Tribunal found that the Revenue failed to provide evidence that the assessee excluded sales tax from the sales, thus the order under section 263 was not justified. The Tribunal's decision was based on the lack of evidence supporting the disallowance of the sales tax expenditure claimed by the assessee.

Proper examination of the issue of sales tax expenditure:
The Commissioner of Income-tax set aside the assessment order, directing a fresh assessment after finding that the Assessing Officer did not properly examine the allowability of sales tax expenditure claimed by the assessee. The Tribunal upheld the appeal of the assessee, stating that the Commissioner did not provide a concrete finding on the merits of the case and ordered further inquiry. The Tribunal held that the assumption of jurisdiction under section 263 by the Commissioner was not in accordance with the law. The High Court concluded that the revisional jurisdiction exercised by the Commissioner was unwarranted as both conditions of section 263 were not satisfied, and no substantial question of law arose, leading to the dismissal of the appeal by the appellant-Revenue.

This detailed analysis of the judgment from the High Court of Punjab and Haryana covers the issues related to the jurisdiction of the Commissioner of Income-tax under section 263, the allowability of sales tax expenditure, and the proper examination of the issue by the Assessing Officer.