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2022 (10) TMI 1255 - AT - Income TaxRevision u/s 263 - as per CIT there was no revenue from operations, the expenditure incurred on finance cost has to be capitalized and cannot be treated as an allowable expenditure u/s 37 - PCIT set aside the issue of allowability of expenditure u/s 37 of the Act to the file of Assessing Officer to the limited extent for verification - HELD THAT - AO has made enquiries from the assessee during the course of assessment. In light of the above, we can safely conclude that the present case is not a case of no enquiry or lack of enquiry. In the present case, AO has made enquiries and thereafter, instead of disallowing the entire expenditure, had restricted the disallowance to 30% of the amount. Therefore, it can be assumed that there is an application of mind by the AO after due examination of the facts of the case on record. It may be noted that the view taken by the AO though may not be echoing with the view as that of the PCIT, as the ld.PCIT has held that the entire expenditure of the financial expenditure made by the assessee has to be capitalized being pre-operative period expenditure. AO on the other hand has allowed the business expenditure to the extent of 70% and has restricted to 30% being violation of section 40(a)(ia) of the Act. Once the issue has been examined, it cannot be said that the AO has not examined the issue and therefore, the question of invocation of Explanation II of Section 263 of the Act does not arise. In the present case, AO has duly applied his mind and thereafter, restricted the disallowance to 30%. Merely because the AO has not applied the view as taken by the PCIT, it cannot be said that the order passed by the AO is erroneous as the view of the AO is also one of the possible views and when two possible views are available, then following one view will not make the order passed by the AO as an erroneous one. Decided in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Examination and disallowance of expenditure under Section 37 of the Income Tax Act. 3. Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act. 4. Applicability of Explanation 2 of Section 263(1) of the Income Tax Act. 5. Pending adjudication before CIT(A) and its impact on the invocation of Section 263. Issue-Wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The Principal Commissioner of Income Tax (PCIT) invoked proceedings under Section 263 of the Income Tax Act, 1961, setting aside the order passed by the Assessing Officer (AO) on 24.12.2019. The PCIT noted that the AO's order was erroneous and prejudicial to the interest of the revenue, as it allowed expenditure that should have been capitalized. The PCIT's jurisdiction under Section 263 was challenged by the assessee, arguing that the AO had already examined the issue during the assessment proceedings, and therefore, the PCIT's revisionary order was not justified. 2. Examination and disallowance of expenditure under Section 37 of the Income Tax Act: The PCIT observed that since there was no revenue from operations, the expenditure incurred on finance cost should be capitalized and not treated as an allowable expenditure under Section 37 of the Act. The assessee contended that the AO had already examined the allowability of the expenditure during the assessment proceedings and had restricted the disallowance to 30% of the amount. The assessee argued that the PCIT could not direct the AO to re-examine the same issue or conduct further inquiries on an issue already considered by the AO. 3. Disallowance of expenditure under Section 40(a)(ia) of the Income Tax Act: The AO had disallowed 30% of the interest expenditure under Section 40(a)(ia) due to non-compliance with TDS provisions. The PCIT, however, held that the entire amount should have been disallowed. The assessee argued that the AO had already addressed this issue and had restricted the disallowance to 30% after due examination. The assessee contended that the PCIT's direction to disallow the entire amount was not permissible. 4. Applicability of Explanation 2 of Section 263(1) of the Income Tax Act: The PCIT invoked Explanation 2 of Section 263(1), stating that an order passed by the AO shall be deemed erroneous if it is passed without making inquiries or verification that should have been made. The assessee argued that the AO had made the necessary inquiries and verifications during the assessment proceedings. The Tribunal noted that the AO had indeed made inquiries and had applied his mind before restricting the disallowance to 30%, and therefore, the AO's order could not be deemed erroneous under Explanation 2. 5. Pending adjudication before CIT(A) and its impact on the invocation of Section 263: The assessee contended that the issue of disallowance of interest expenditure was already pending adjudication before the CIT(A), who had co-terminus power with the AO to enhance the additions. The Tribunal agreed with the assessee, noting that once an issue is pending before the CIT(A), it is not appropriate for the PCIT to exercise power under Section 263. The Tribunal emphasized that there should not be overlapping and overstepping of jurisdiction by authorities, and the PCIT's action was not justified when the issue was already under consideration by the CIT(A). Conclusion: The Tribunal concluded that the AO had made the necessary inquiries and had applied his mind before restricting the disallowance to 30%. The Tribunal held that the PCIT's invocation of Section 263 was not justified, as the AO's order was not erroneous or prejudicial to the interest of the revenue. The Tribunal set aside the PCIT's order and allowed the appeal of the assessee.
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