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2021 (5) TMI 484 - AT - Income TaxRevision u/s 263 - as per CIT AO has not conducted a proper inquiry with regard to the land development expenditure - HELD THAT - Action under section 263 could be taken if twin conditions viz. impugned order should be erroneous, and it should be prejudicial to the interest of the Revenue. In the present case, when the assessee has not claimed any expenditure, then where is the prejudice to the Revenue; where is the loss to the Revenue. Veracity of such expenditure taken to the work-in-progress could be examined in the year when sales will be made. This plea has been specifically raised by the assessee before the ld.CIT, but the ld.CIT did not record any finding, even did not consider it. Hence, order of the ld.Pr.Commisisoner is not sustainable, it deserves to be quashed. Accordingly, appeal of the assessee is allowed
Issues Involved:
1. Legitimacy of the Principal Commissioner of Income Tax (Pr.CIT) taking cognizance under section 263 of the Income Tax Act. 2. Validity of the assessment order dated 27.12.2016 passed under section 143(3) of the Income Tax Act. 3. Direction to the Assessing Officer (AO) to pass a fresh assessment. Issue-wise Detailed Analysis: 1. Legitimacy of the Pr.CIT taking cognizance under section 263 of the Income Tax Act: The assessee appealed against the order of the Pr.CIT-7, Ahmedabad, dated 30.3.2019, which was passed under section 263 of the Income Tax Act, 1961, for the Assessment Year 2014-15. The Pr.CIT had set aside the assessment order dated 27.12.2016, directing the AO to pass a fresh assessment. The Pr.CIT believed that the AO had not conducted a proper inquiry regarding the land development expenditure of ?21,46,500/-, thus making the assessment order erroneous and prejudicial to the interests of the Revenue. 2. Validity of the assessment order dated 27.12.2016 passed under section 143(3) of the Income Tax Act: The Pr.CIT issued a show cause notice under section 263, citing that the AO allowed the land development expenditure without proper inquiries or verification. The assessee responded with detailed written submissions, arguing that the land development expenditure was not claimed as a deduction in the Profit & Loss account but was included in the work-in-progress, thus not causing any loss to the Revenue. The assessee relied on the decision in Amira Foods P.Ltd. Vs. Pr.CIT and CIT Vs. Gabriel India Ltd. to support their claim that no deduction was claimed, and hence no underassessment or loss to revenue occurred. 3. Direction to the AO to pass a fresh assessment: Despite the assessee's submissions, the Pr.CIT was not satisfied and set aside the assessment order, directing the AO to re-examine the genuineness of the expenses. The Pr.CIT instructed the AO to summon the recipients of the payments and verify if they reported such receipts as income. The Tribunal examined section 263 of the Income Tax Act, which allows the Commissioner to revise an order if it is erroneous and prejudicial to the interests of the Revenue. The Tribunal noted that the Pr.CIT must demonstrate both conditions: the order is erroneous and prejudicial to the Revenue. The Tribunal found that since the assessee did not claim the expenditure as a deduction, there was no prejudice to the Revenue. The Tribunal emphasized that the veracity of such expenditure could be examined in the year when sales are made. Conclusion: The Tribunal concluded that the Pr.CIT's order was not sustainable as it did not record any findings on the assessee's specific plea that no expenditure was claimed. The Tribunal quashed the Pr.CIT's order and allowed the assessee's appeal, emphasizing that the AO's decision could not be deemed erroneous simply because the Pr.CIT was not satisfied with the conclusion. The Tribunal highlighted that if the AO made inquiries and the assessee provided detailed explanations, the AO's decision could not be held erroneous merely due to a lack of elaborate discussion in the order. Result: The appeal of the assessee was allowed, and the Pr.CIT's order was quashed. The order was pronounced in the Court on 13th May 2021 at Ahmedabad.
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