2021 (3) TMI 478 - AT - Income Tax

Revision u/s 263 - AO has not caused any enquiries with regard to financial adjustment charges though the same was reduced from the profit in the P L account - HELD THAT - As per explanation (1 )of Clause (c) of the provisions of 115JB, the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities required to be increased by such amount for MAT purpose. In the instant case, the AO has neither verified the liability nor the expenditure under MAT provisions u/s 115JB of the Act. Merely because the balance sheet and P L account are placed before the AO at the time of assessment, it cannot be construed that the AO had verified the entire issues unless specific information is called by the AO. Therefore, there was an error which is prejudicial to the interest of revenue with regard to non-verification of financial surcharge adjustment in the assessment made u/s 143(3). Hon ble Bombay High court in Sesa Starlite Ltd.v .Commissioner of Income Tax, Panaji, Goa 2020 (11) TMI 102 - BOMBAY HIGH COURT flowing the order of Apex court in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT held that where Assessing Officer sought information from assessee regarding its claim of deduction under section 10B, however, without considering such information produced by assessee and without application of mind to same, allowed such claim for deduction, it was a case of inadequate inquiries and, therefore, exercise of revision jurisdiction by Commissioner under section 263 was justified. This view is supported by the decision of Hon ble Supreme court in Malabar Industrial Co. Ltd(Supra). Therefore we are inclined to hold that the Ld.CIT(A) has rightly invoked the provisions of section 263 of the Act. Expenditure debited to P L account or reduced from the profit before tax as exceptional item needs to be verified on the facts and merits and also in view of the judicial precedents relied upon by the assessee. Therefore, we set aside the order of the Ld.Pr.CIT and remit the matter back to the file of the AO to examine the issue in the light of the submissions made by the Ld.AR and the case laws relied upon by the Ld.AR during the appeal proceedings and decide the issue afresh on merits. The order of the Ld.Pr.CIT passed u/s 263 is modified accordingly. Appeal of the assessee is allowed for statistical purpose.

Summary

Issues:
Assessment under section 263 of the Income Tax Act, 1961 for Assessment Year 2013-14.

Analysis:
The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax (Pr.CIT) under section 263 of the Income Tax Act, 1961. The issue revolved around the treatment of a sum of ?3,18,81,955/- related to fuel surcharge adjustments in the financial statements for the Assessment Year 2013-14. The Pr.CIT found that the amount was directly taken to the Balance Sheet without routing through the Profit and Loss account, leading to the belief that it should have been brought to tax under Minimum Alternate Tax (MAT) provisions. The Pr.CIT viewed the order passed by the Assessing Officer (AO) as erroneous and prejudicial to the interest of the revenue, hence cancelling the assessment made under section 143(3) and directing the AO to tax the entire amount for the said assessment year.

The assessee argued that the fuel surcharge adjustment constituted an exceptional item as per Schedule III of the Companies Act, and therefore, was directly taken to the Balance Sheet. The assessee contended that the expenditure was accrued and payable at a later date as per agreements, making it allowable under normal provisions and not falling under MAT provisions. The assessee emphasized that the liability was related to the assessment year under consideration, even though payment was deferred to subsequent years. The Ld.Pr.CIT, however, was not convinced and held that the AO's order was erroneous, leading to the initiation of revision proceedings under section 263.

During the appeal hearing, the assessee reiterated that the AO had verified the issue of fuel surcharge adjustments and completed the assessment. The assessee argued that the liability was ascertained and related to the assessment year under consideration, thus justifying the deduction claimed. The Ld.AR referred to relevant case laws to support the contention that there was no error in the AO's order requiring revision under section 263.

The Tribunal, after hearing both parties, observed that the AO had not conducted inquiries regarding the financial adjustment charges, despite the same being reduced from the profit in the Profit and Loss account. Citing relevant provisions of the Income Tax Act and judicial precedents, the Tribunal held that the AO's failure to verify the liability and expenditure under MAT provisions rendered the assessment erroneous and prejudicial to the revenue's interest. Therefore, the Tribunal set aside the order of the Ld.Pr.CIT and remitted the matter back to the AO for a fresh examination based on the submissions made during the appeal proceedings and relevant case laws. The Tribunal allowed the assessee to present all relevant submissions before the AO, ensuring a reasonable opportunity for the same. The appeal of the assessee was allowed for statistical purposes.