2008 (2) TMI 113 - HC - Income Tax

Assessee was not entitled to claim the expenditure in A.Y. 1990-91 but only in an earlier assessment year, and that claim was made by the Assessee for the A.Y. 1989-90, as a result of a direction given by the Commissioner u/s 263 to re-compute the income of the Assessee no error was committed both by CIT (A) & Tribunal in concluding that AO ought to have taken these facts into consideration for the purposes of computing the correct income of the Assessee revenue s appeal is dismissed

Summary

Issues:
1. Interpretation of Section 115-J of the Income Tax Act, 1961 for computing book profit.
2. Allowability of expenditure claimed in a different assessment year.
3. Jurisdiction of assessing officer post a direction under Section 263 of the Act.
4. Duty of the assessing officer to examine claims for deduction during assessment proceedings.

Analysis:

1. Interpretation of Section 115-J:
The case involved a dispute regarding the computation of income under Section 115-J of the Income Tax Act, 1961. The initial assessment order did not contain the correct computation of income, leading to discrepancies in the book profit calculation. The Commissioner under Section 263 directed the assessing officer to recompute the profit under Section 115-J, emphasizing the need for accurate computation following due process.

2. Allowability of Expenditure:
Another issue arose concerning the allowability of an expenditure of Rs.41,14,955/- in the assessment year 1989-90. The assessing officer initially rejected the claim based on the limited scope of the Section 263 order. However, the subsequent proceedings highlighted the need to consider the expenditure claim, which was initially related to a different assessment year, but now relevant due to subsequent developments.

3. Jurisdiction Post Section 263 Direction:
The assessing officer's jurisdiction post the Section 263 direction was a point of contention. The Commissioner's order did not restrict the assessing officer from considering fresh issues arising from subsequent developments. The assessing officer's refusal to entertain the expenditure claim based on the limited scope of the Section 263 order was deemed incorrect by the higher authorities.

4. Duty to Examine Claims:
The case emphasized the duty of the assessing officer to examine claims for deduction during assessment proceedings. Referring to a similar case law, it was established that when an assessee makes a claim for deduction during assessment, the assessing officer is duty-bound to examine the claim on its merits. The assessing officer cannot reject the claim outright without proper consideration, especially if the claim arises from subsequent events.

In conclusion, the court dismissed the appeal by the Revenue, highlighting that the assessing officer should have considered all relevant facts and claims, especially those arising from subsequent developments post the Section 263 direction. The judgment underscored the importance of a thorough examination of claims for deduction during assessment proceedings, ensuring fairness and adherence to legal principles.