2023 (6) TMI 1421 - AT - Income Tax

Revision u/s 263 - treatment of lease charges for the gas pipelines in the books of account by complying with the provisions of Companies Act and the Accounting Standard vis- -vis the allowability of the same in computing the income from profits and gains from business or profession under the provisions of the Act - sole premise on which the revisionary proceedings were invoked is that the amount has not been passed through the P L Account and is an item of Balance sheet, therefore, it is not an allowable deduction from the taxable income of the assessee HELD THAT - Counsel has taken us through the audited financial statement which includes statement of P L and demonstrated charging of depreciation and amortization, both on tangible assets and intangible assets which includes equipment under lease. Further, the charge of depreciation and amortization which has been adjusted while computing the income under the head Profits and Gains of business or profession in accordance with the provisions of the Act has also been substantiated by the Ld. Counsel. As in the absence of such foundation, exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue. We unhesitatingly hold that the impugned order is not sustainable as there is no prejudice caused to the revenue as well as it is not being erroneous in terms of provisions of sec. 263 - Assessee appeal allowed.

Summary

Issues:
Challenge to revision order u/s. 263 of the Income-tax Act, 1961 by the Ld. Pr. CIT, Kolkata regarding the allowability of depreciation on Equipment Under Lease Finance.

Analysis:
The appeal filed by the assessee contested the revision order u/s. 263 of the Income-tax Act, 1961. The primary challenge was against the assumption of jurisdiction by the Ld. Pr. CIT, Kolkata for invoking the revisionary proceeding and passing the impugned order. The case involved the treatment of lease charges for gas pipelines in the books of account and the allowability of the same in computing income from business or profession under the Act.

The Ld. Pr. CIT observed that the amount claimed by the assessee as a deduction was not passed through the P&L Account and was an item of the Balance Sheet. This led to the under-assessment of income, according to the Ld. Pr. CIT. Consequently, a show cause notice was issued u/s. 263, and the assessment order was set aside for fresh adjudication. The assessee contended that the claimed amount had been correctly treated in the audited financial statements and was allowable as per the provisions of the Act.

The Ld. Counsel for the assessee presented detailed arguments supported by the audited financial statements to demonstrate the treatment of the claimed amount. The counsel highlighted the compliance with Accounting Standards and provisions of the Companies Act in charging depreciation and amortization. The counsel also pointed out discrepancies in the revisionary proceedings for different assessment years and cited relevant legal precedents to support the appeal.

After considering the rival contentions and examining the material on record, the Tribunal found that the basis assumed by the Ld. Pr. CIT for invoking revisionary proceedings did not hold. The Tribunal applied the legal maxim 'sublato fundamento cadit opus,' indicating that without a valid foundation, the action taken falls. It concluded that the impugned order was unsustainable as it did not cause prejudice to revenue and was not erroneous under sec. 263 of the Act. Accordingly, the appeal of the assessee was allowed, and the impugned order was set aside.

In conclusion, the Tribunal's decision favored the assessee, emphasizing the importance of a valid foundation for revisionary proceedings and the need for adherence to legal principles in such matters. The judgment highlighted the significance of proper documentation and compliance with accounting standards in determining the allowability of deductions under the Income-tax Act.