2019 (11) TMI 1179 - AT - Income Tax

Revision u/s 263 - AO had simply accepted the version of assessee and allowed deduction of provision which is an un-ascertained liability, as well as the same un-ascertained liability could not have been allowed by the AO while computing book-profit u/s 115JB - HELD THAT - CIT has simply made an averment that the assessment order is not in accordance to Explanation 2(c) below Section 263 of the Act, without spelling out which order, direction of CBDT has not been followed by the AO. So we do not countenance such a bald finding of the Ld. Pr. CIT to bring in the deeming provision to hold that the assessment order is erroneous as well as prejudicial to the interest of the revenue. We note that the fault which the Ld. Pr. CIT noted was that the provision of ₹5.75 crores is based on estimation and whether there is any liability for the assessee to complete the flats and whether the liability is ascertained liability or not and since according to the Ld. Pr. CIT it is unascertained liability, ₹5.75 crores should have been added u/s 115JB of the Act. AO had taken note of the issue of provision of ₹5.75 crores claimed by the assessee as deduction and has raised queries and the assessee has duly replied and the AO has accepted the claim of the assessee. Since the provision the assessee claimed is an ascertained liability, there was no question that AO could have disallowed the same neither in the normal computation nor while computing book profit u/s 115JB of the Act. So the AO has discharged his duty as an investigator as well as an adjudicator and allowed the claim which is a plausible view, which cannot at any rate be called as an unsustainable view. So the Ld. Pr. CIT failed to make out a case that the order of AO is erroneous as well as prejudicial to the interest of the revenue, which was a condition precedent for invoking jurisdiction u/s 263 of the Act. Therefore the impugned order of Ld. Pr. CIT is without jurisdiction and null in eyes of law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of revisional jurisdiction invoked by the Ld. Pr. CIT under Section 263 of the Income Tax Act, 1961.
2. Whether the provision for expenses of ?5,75,01,370/- made by the assessee was an ascertained liability.
3. Whether the AO's acceptance of the provision without disallowing it under Section 115JB of the Act was erroneous and prejudicial to the interest of the revenue.

Detailed Analysis:

1. Validity of Revisional Jurisdiction Invoked by Ld. Pr. CIT:
The assessee challenged the exercise of revisional jurisdiction by the Pr. CIT under Section 263 of the Act. The Pr. CIT issued a show cause notice (SCN) proposing to interfere with the assessment order passed by the AO on the grounds that the AO had not disallowed the provision for expenses of ?5,75,01,370/- while computing book profit under Section 115JB of the Act. The assessee contended that the AO had examined this issue in detail during the assessment proceedings and had accepted the provision as an ascertained liability. The Tribunal noted that the AO had indeed raised a query regarding the provision during the assessment proceedings, and the assessee had provided a detailed reply supported by an architect's certificate and a site engineer's report. The Tribunal held that the AO had taken a plausible view, and the Pr. CIT could not invoke revisional jurisdiction merely because he had a different opinion.

2. Whether the Provision for Expenses was an Ascertained Liability:
The assessee argued that the provision for expenses was made based on a detailed cost estimate provided by the site engineer and was necessary to fulfill the company's contractual obligations under the agreements with the flat purchasers. The provision was made in a scientific manner, and the actual expenditure incurred in subsequent years was higher than the provision created. The Tribunal referred to the judgment of the Hon'ble Supreme Court in the case of Calcutta Company Ltd. Vs. CIT, which supported the assessee's claim that an accrued liability, even if payable in the future, is deductible. The Tribunal also referred to the decision in DCIT vs. M/s. Ashiana Housing Ltd., where a similar provision was allowed as a deduction.

3. Whether AO's Acceptance of the Provision was Erroneous and Prejudicial to the Revenue:
The Tribunal noted that the AO had conducted an enquiry into the provision and had accepted it as an ascertained liability. The Tribunal emphasized that there is a distinction between "lack of enquiry" and "inadequate enquiry." If the AO had conducted an enquiry, even if inadequate, the Pr. CIT could not invoke revisional jurisdiction under Section 263 merely because he believed more enquiries should have been conducted. The Tribunal held that the AO's view was a plausible one and could not be considered unsustainable in law. The Tribunal also noted that the Pr. CIT had not pointed out any specific order, direction, or instruction issued by the CBDT under Section 119 of the Act that the AO had failed to follow. Therefore, the Tribunal concluded that the Pr. CIT had failed to establish that the AO's order was erroneous and prejudicial to the interest of the revenue.

Conclusion:
The Tribunal quashed the impugned order of the Pr. CIT, holding that the conditions precedent for invoking revisional jurisdiction under Section 263 of the Act were absent. The appeal of the assessee was allowed.