2023 (11) TMI 756 - HC - Income Tax

Revision u/s 263 - Allowability of provisions of construction expenditures - As per CIT provision for construction expenditure is an un-ascertainable liability and is not allowable u/s. 37(1) above expenditure allowed by the AO in the assessment order is not in order - HELD THAT - As during the assessment proceedings, these expenses have been examined and scrutinized and question was asked by the Assessing Officer and the assessee has replied to the AO. The assessee has submitted its reply stating that provision for construction expenditures (Flat Sale) represent the proportionate expenditure apportioned to the units sold and this expenditure has been really paid in the subsequent financial year 2017-18. Therefore, these are the real expenses for which the assessee has made the provision and Ao examined the issue and took a possible view and completed the assessment. Therefore, such assessment order should not be considered as erroneous and prejudicial to the interest of revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the Ld. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue unless the view taken by the Assessing Officer is unsustainable in law. Herein, AO has conducted sufficient inquiry, as noted above. Besides, the Ld. PCIT has not set out as to why this item of provision for expenditure need to be investigated and as to what type of inquiry ought to have conducted by the AO - A mere observation that no proper details have been obtained, cannot be sufficient to come to a conclusion that the Assessing Officer did not make proper and adequate inquiries which he ought to have made in the given facts and circumstances of this case. - Decided in favour of assessee.

Summary

Issues:
The judgment involves the following Issues:
1. Justification of quashing the order of the Pr.CIT passed u/s. 263.
2. Empowerment of the Ld. PCIT to revise assessment order u/s. 263.
3. Consideration of all Explanation/subsections associated with section 263.
4. Adherence to the provisions of section 263 of the Income Tax Act.

Issue 1:
The Tax Appeal challenged the order of the Income Tax Appellate Tribunal (ITAT) quashing the order of the Principal Commissioner of Income Tax (Pr.CIT) passed under section 263. The main question was whether the decision of the Assessing Officer (AO) could be considered erroneous and prejudicial to the interest of revenue, even if it resulted in a revenue loss. The Tribunal found that the AO properly examined the provision for construction expenses and allowed the claim of the assessee, concluding that the order passed by the AO should not be deemed erroneous.

Issue 2:
The issue revolved around the authority of the Ld. PCIT to revise the assessment order under section 263. The CIT observed that the AO had not verified the correctness of the provisions of construction expenses claimed by the assessee, which were considered an unascertainable liability and not allowable under section 37(1) of the Act. The Tribunal held that the AO had conducted sufficient inquiry during the assessment proceedings, and the Ld. PCIT did not provide reasons why further investigation was necessary. The Tribunal concluded that the order of the AO was neither erroneous nor prejudicial to the interest of revenue due to lack of inquiry.

Issue 3:
The Tribunal considered whether all Explanation/subsections associated with section 263 were adequately covered in the decision-making process. Relying on the decision in Malabar Industries Ltd vs. CIT, the Tribunal emphasized that the order of the AO must be both erroneous and prejudicial to the interest of revenue for revision under section 263. In this case, the Tribunal found that the AO had taken a permissible course of action, and the Ld. PCIT did not provide sufficient grounds to show that the AO's decision was unsustainable in law. Therefore, the Tribunal held that the order of the AO was not erroneous or prejudicial to the revenue's interest, and no substantial question of law arose.

Issue 4:
The Tribunal examined whether the provisions of section 263 of the Income Tax Act were duly adhered to by the Pr.CIT while revising the assessment order. The Tribunal found that the AO had conducted a proper inquiry and the Ld. PCIT did not specify the need for further investigation into the provision for expenditure. As the AO's order was found to be neither erroneous nor prejudicial to the revenue, the Tribunal dismissed the appeal, stating that no question of law, let alone a substantial question of law, arose from the case.