2021 (1) TMI 990 - AT - Income Tax

Revision u/s 263 - provision for expenses disallowable or it is provision for contingent liability - HELD THAT - Finding of the CIT-2, Pune that the provision for expenses is contingent liability is not based on any material, it is mere ipse dixit - impugned order does not contain an allegation by the ld. Pr. Commissioner of Income Tax-2, Pune that the Assessing Officer had not enquired into this issue during the course of assessment proceedings. Thus, it is clear that it is not even case of learned CIT that AO had not enquired into this case. Therefore, the case even does not fall within ambit of Explanation 2 to sub-section (1) of section 263 of the Act inserted by Finance Act, 2015 w.e.f. 1.6.15. Considering all the above facts, it cannot be said that the assessment order is erroneous causing consequence prejudice to the interests of the revenue. - Decided in favour of assessee.

Summary

Issues: Validity of exercise of jurisdiction under section 263 of the Income Tax Act, 1961.

In the present case, the appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax-2, Pune under section 263 of the Income Tax Act, 1961 for the assessment year 2015-16. The appellant, a partnership firm engaged in the business of builders and land developers, had filed its return of income disclosing a total income of ?3,32,39,320. The assessment was completed by the Assessing Officer accepting the returned income after a limited scrutiny focusing on Stock Valuation and Income from Real Estate Business. Subsequently, the Principal Commissioner issued a show-cause notice regarding the disallowance of a provision for expenses of ?50,00,000 as a contingent liability. The appellant did not respond to the notice, leading to the Principal Commissioner passing an ex-parte order directing the Assessing Officer to re-examine the claim and pass a fresh assessment order after providing a hearing to the appellant.

Upon hearing the case, the Appellate Tribunal noted that the sole issue in the appeal pertained to the validity of the exercise of jurisdiction under section 263 of the Act. The Tribunal emphasized the settled legal principle that for the Commissioner to invoke the revisionary power under section 263, two conditions must co-exist: the assessment order should be erroneous and prejudicial to the Revenue's interests. Citing precedents, the Tribunal highlighted that the Commissioner's satisfaction should be based on objective material rather than subjective assessment. The Tribunal found that the impugned order lacked material or reference suggesting the disallowance of the provision for expenses as a contingent liability. It noted that the Principal Commissioner's finding was unsubstantiated and not based on any material, thus failing to meet the legal threshold for invoking section 263. Moreover, there was no allegation that the Assessing Officer had overlooked this issue during the assessment proceedings, further undermining the revision order's validity.

Based on the above analysis, the Tribunal concluded that the assessment order was not erroneous to the extent of causing prejudice to the Revenue's interests. Consequently, the Tribunal held that the revision order passed by the Principal Commissioner could not be sustained in law and proceeded to quash the impugned order. As a result, the appeal filed by the assessee was allowed, overturning the decision of the Principal Commissioner. The Tribunal pronounced its order on December 14, 2020, in favor of the assessee.