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2018 (2) TMI 1589 - AT - Income TaxRevision u/s 263 - order of AO erroneous in so far as prejudicial to the interest of Revenue - Lack of enquiry with regard to issue of allowability of prior period expense by AO - Held that - It is undisputed fact that no opportunity was afforded to the assessee in the instant case by the ld CIT to address on the aspect of lack of enquiry on the allowability of prior period expenses. We hold that the ld CIT erred in concluding that lack of enquiry with regard to allowability of prior period expenses on the part of the ld AO would automatically make the order of ld AO erroneous and prejudicial to the interest of the revenue in the facts and circumstances of the case in as much as no opportunity of hearing was given to the assessee in that regard. No hesitation in quashing the impugned order passed by the ld Pr.CIT u/s 263 - Decided in favour of assessee.
Issues Involved:
1. Whether the assessment order passed u/s 143(3) for AY 2012-13 was erroneous and prejudicial to the interest of the revenue. 2. Whether the CIT was justified in revising the assessment order on the ground of lack of enquiry regarding the allowability of prior period expenses. 3. Whether the CIT was justified in setting aside the assessment on a ground different from the one on which the revision proceeding was initiated. 4. Whether the liability for prior period expenses had crystallized during the relevant year, justifying the deduction. 5. Whether the invocation of proceedings u/s 263 was justified. Issue-wise Detailed Analysis: 1. Erroneous and Prejudicial to Revenue: The core issue was whether the assessment order dated 30.03.2015 for AY 2012-13, which allowed prior period expenses, was erroneous and prejudicial to the interest of the revenue. The CIT held that the order was erroneous because it resulted in the under-assessment of income due to the allowance of prior period expenses amounting to ?39,34,86,241/-. The CIT argued that the AO failed to make necessary inquiries or verification regarding these expenses, rendering the assessment order prejudicial to the revenue's interest. 2. Lack of Enquiry: The CIT revised the assessment order on the grounds that the AO did not conduct any inquiry into the allowability of prior period expenses. The CIT cited several judicial precedents, including the Delhi High Court's decision in GEE VEE Enterprise Vs. Addl. CIT, which held that an AO's failure to make necessary inquiries could render an assessment order erroneous and prejudicial to the revenue. The CIT emphasized that the AO should have made further inquiries before accepting the assessee's claims. 3. Different Grounds for Revision: The assessee contended that the CIT, in the show cause notice, did not allege a lack of inquiry but later held the order erroneous on this ground. The Tribunal noted that the CIT changed the basis for holding the order erroneous and prejudicial to the revenue without providing the assessee an opportunity to address this new ground. The Tribunal relied on the Supreme Court's decision in CIT v. Amitabh Bachchan, which mandates giving the assessee an opportunity to be heard on new issues raised during revision proceedings. 4. Crystallization of Liability: The assessee argued that the prior period expenses were crystallized during the relevant year due to the settlement of disputes with Bharat Coking Coal Ltd. (BCCL). The Tribunal acknowledged the assessee's detailed explanation and supporting documents, which demonstrated that the expenses were settled and accounted for in the FY 2011-12. The Tribunal cited the Calcutta High Court's decision in CIT v. Todi Tea Co. Ltd., which allowed deductions for liabilities crystallized in the relevant year, even if they pertained to earlier periods. 5. Justification of Proceedings u/s 263: The Tribunal found that the CIT did not provide the assessee an opportunity to address the lack of inquiry issue, violating principles of natural justice. The Tribunal referred to the Delhi High Court's decision in ITO vs. D.G. Housing Project Ltd., which held that the CIT must conduct necessary inquiries and record findings before concluding that an order is erroneous. The Tribunal also referenced the Supreme Court's decision in CIT v. Amitabh Bachchan, emphasizing the need for an opportunity of hearing on new issues. Conclusion: The Tribunal quashed the CIT's order passed u/s 263, holding that the CIT erred in concluding that the lack of inquiry by the AO automatically rendered the assessment order erroneous and prejudicial to the revenue's interest. The Tribunal allowed the assessee's appeal, restoring the original assessment order. Order Pronounced: The assessee's appeal was allowed, and the order was pronounced in the open court on 21/02/2018.
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