2018 (4) TMI 342 - HC - Income Tax

Revision u/s 263 - whether an amount of 25% of the royalty should be treated as capital expenditure and, therefore, disallowed? - Held that - We see no reason to accept the contention that the Principal Commissioner has made up his mind and will not take a view in favour of the assessee even if he is required to do so. The language of the show cause notice was relied upon in support of this apprehension. Indeed, some of the observations would indicate the same.That is only a manner in which it has been put. We have no doubt that if the petitioner s contention is otherwise found to be correct the Principal Commissioner will drop the proceedings. In fact, in that event, he would be bound to do so. The contention that it was wrongly observed that it was admitted by the assessee during the course of assessment proceedings that the facts of the assessee s case and the facts of the said judgment are identical can also be raised in the proceedings relating to the show cause notice. To leave no room for grievance, it is clarified that if a jurisdictional issue does in fact arise the petitioner can always challenge even the order on the show cause notice by filing a separate writ petition.

Summary

Issues:
Challenge to notice under section 263 of the Income Tax Act, 1961 for revising assessment order.

Analysis:
The petitioner challenged a notice under section 263 of the Income Tax Act, 1961, questioning the assessment order passed by the DCIT for the Assessment Year 2011-12. The assessment was completed under section 143(3) on 04.01.2016, showing an income of approximately ?599 crores against a returned income of around ?562 crores. The notice highlighted discrepancies in the assessment records, suggesting that the assessing order was erroneous and prejudicial to the revenue's interest. One of the key issues raised was whether 25% of the royalty should be considered as capital expenditure and disallowed, referencing judgments from the Supreme Court and the Allahabad High Court.

The petitioner argued that the Principal Commissioner misinterpreted the aforementioned judgments. The court noted the petitioner's apprehension that the Principal Commissioner had already formed an opinion against the assessee, as indicated by the language of the show cause notice. However, the court expressed confidence that if the petitioner's contentions were found to be correct, the Principal Commissioner would be obliged to drop the proceedings. The petitioner could raise the contention regarding the alleged admission by the assessee during the assessment proceedings in response to the show cause notice.

The court clarified that if a jurisdictional issue arose, the petitioner could challenge the order on the show cause notice by filing a separate writ petition. It was emphasized that the petitioner could contest the issue based on the legal position existing on 04.01.2016. The court refrained from expressing any views on this matter and dismissed the petition with the aforementioned observations.