2017 (8) TMI 422 - HC - Income Tax

Exercise of jurisdiction by Principal CIT u/s 263 - proof of adequate enquiries - Assessee having claimed tax credit on account of deemed dividend taxable in Oman - Held that - Revenue had consistently permitted the Assessee to avail tax credit on the deemed dividend during AYs 2006-07 to 2009-10. The ITAT after going through the entire record came to the following conclusion that in respect of the current assessment year i.e. AY 2010-11 which is the subject matter of revision and appeal before us the Assessing Officer has adopted the same view in consonance with the view adopted in the past years and for which detailed queries and inquiries were raised and conducted by the Assessing Officer. ITAT perused the queries raised by the AO and the reply given thereto by the Assessee, in respect of the dividend income received from OMIFCO. Therefore, the contention of the Revenue that no adequate enquiries in respect of the above issue were made was held to be completely misplaced . As regards the issue concerning the capitalization of interest, the Court finds again that the ITAT took note of the fact that detailed enquires were made by the AO in regard to the major additions to the fixed assets, capital work in progress, the manner in which the depreciation was claimed and the details of both secured as well as unsecured loans. The audited financial statements of the Assessee were also compiled, for the earlier AYs including the AY in question, and placed before the AO. The ITAT also took note of the Significant Accounting Policies in the Auditor s Report and the synopsis filed before the AO. No substantial question of law arises for consideration from the impugned order of the ITAT.

Summary

Issues:
1. Delay in re-filing the appeal.
2. Exercise of jurisdiction by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act.
3. Tax credit claimed by the Assessee in respect of dividend income.
4. Capitalization of interest under Section 36(1)(iii) of the Act.
5. Interpretation of Explanation-2 to Section 263 of the Act.

Delay in re-filing the appeal:
The High Court condoned the delay of 30 days in re-filing the appeal, as per the application submitted, and disposed of the matter swiftly.

Exercise of jurisdiction by the Principal Commissioner of Income Tax under Section 263:
The Revenue filed an appeal against the ITAT's order, focusing on the Pr CIT's order for a de novo assessment. The central issue was the jurisdiction exercised by the Pr CIT under Section 263. The Court examined the contentions of both parties, ultimately finding that the Pr CIT's exercise of power under Section 263 was not justified.

Tax credit claimed by the Assessee in respect of dividend income:
The ITAT concluded that the Assessee had been permitted tax credit on deemed dividend in previous years, and detailed inquiries were conducted by the AO for the current assessment year. The Court held that the Pr CIT's intervention was unwarranted as the AO had applied a consistent approach after thorough examination.

Capitalization of interest under Section 36(1)(iii) of the Act:
The ITAT noted detailed inquiries made by the AO regarding fixed assets, depreciation, and loans. It found that the Assessee followed established accounting policies, and the Pr CIT's order was deemed incorrect. The Court agreed that the Assessee had provided sufficient evidence to support the capitalization of interest, and the Pr CIT's order was held to be legally flawed.

Interpretation of Explanation-2 to Section 263 of the Act:
The ITAT clarified that detailed inquiries were conducted by the AO on the issues raised, and the order was in compliance with legal requirements. The Court concurred with the ITAT's findings, stating that the order could not be deemed erroneous or prejudicial to the Revenue's interest. Consequently, the appeal was dismissed with no costs awarded.

In conclusion, the High Court's judgment addressed various issues related to the appeal, emphasizing the importance of thorough examination and adherence to legal provisions in tax matters. The Court's detailed analysis and findings provided clarity on each issue, leading to the dismissal of the appeal based on the lack of substantial legal questions.