2024 (6) TMI 206 - AT - Income Tax

Revision u/s 263 - PCIT has initiated revisionary action on the reasoning that the liability of Nardana Claim-1 and Nardana Claim-2 cannot be recognized as per ICDS (Income Computation and Disclosure Standards) - whether the AO s approach in accepting the explanation furnished by assessee to him, could be said to be an unsustainable view? - HELD THAT - We find that during the course of assessment-proceeding, there were specific queries raised by AO with regard to the issues contemplated by PCIT and the assessee made detailed replies/submissions. It is on record that vide statutory notice dated 13.01.2021 issued u/s 142(1), AO made specific queries qua Nardana Claim-1 and Nardana Claim-2 to assessee and in response, assessee filed a cogent reply dated 19.01.2021. Then, vide notice dated 05.02.2021 issued again u/s 142(1), AO referred assessee s previous reply dated 19.01.2021 and raised follow-up queries qua not only the present status of Nardana Claim-1 and Nardana Claim-2 but also how the assessee has taken income incidence in his regular books of account. Assessee filed a vehement and detailed reply dated 09.02.2021. Therefore, there can hardly be any dispute or controversy by revenue that the AO has not investigated the issues of Nardana Claim-1 and Nardana Claim-2 . The follow-up query by AO itself negates the revenue s stand that the AO has merely kept assessee s reply in departmental file and not applied any mind. Even if the AO has not discussed the issues in assessment-order it cannot be said that the AO has not examined the assessee. PCIT is wrong in terming AO s order as erroneous-cum-prejudicial on the basis that the AO has not made investigation. Whether the AO s approach in accepting the explanation furnished by assessee to him, could be said to be an unsustainable view? - We find that the assessee has given substantial evidences to prove that the impugned liabilities of Nardana Claim-1 and Nardana Claim-2 could not have been recognized as income in AY 2018-19 under consideration because of the reason that the matters were disputed and pending for adjudication before courts. But as soon as the matters attained finality by court orders, the assessee transferred those liabilities to P L A/c by passing necessary reversal entries and offered them as income. The decision by Hon ble Court is a clearly pointer to hold the proposition that as long as there remains a dispute/litigation, the income cannot be said to have accrued or arisen to assessee. Therefore, we do not find any fallacy in the approach adopted by assessee. That apart, even assuming that there could be two views with regard to the taxability year of the impugned amounts, if the AO has followed a view which is favourable to assessee, the order of AO cannot be termed as erroneous-cum-prejudicial to the interest of revenue as held by Hon ble Apex Court in Malabar Industries Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT We also find a substance in the submission of Ld. AR that the PCIT has basically made revision on the basis that there was violation of ICDS-VII and ICDS-X whereas the case of assessee concerns with recognition of revenue and how the ICDSs referred by PCIT were violated? During hearing, we questioned Ld. DR about this aspect but the Ld. DR could not give any reply except dutifully relying on the observation made by Ld. PCIT. The revision-order passed by PCIT in the present case is not sustainable. Hence we are inclined to quash the revision order passed by PCIT and restore the assessment-order passed by AO. Assessee appeal allowed.

Summary

Issues Involved:

1. Initiation of revision proceedings u/s 263.
2. Treatment of the assessment order as erroneous and prejudicial to the interests of revenue.
3. Inquiry and evidence regarding taxability of the award.
4. Reliance on judicial precedents.
5. Accrual and taxability of the arbitral award.
6. Non-duplication of income taxation.

Summary:

1. Initiation of Revision Proceedings u/s 263:
The assessee contended that the Pr. CIT erred in initiating revision proceedings u/s 263 of the Income-tax Act, 1961, ignoring that the AO had made specific inquiries during the assessment proceedings regarding the year of taxability of the award. The AO, after being satisfied with the replies and evidence provided by the assessee, accepted that the award was not taxable in the assessment year in question.

2. Treatment of Assessment Order as Erroneous and Prejudicial to Revenue Interests:
The Pr. CIT treated the assessment order dated 26.02.2021 passed u/s 143(3) by the National Faceless Assessment Centre, Delhi for A.Y. 2018-19 as erroneous and prejudicial to the interests of revenue. The Pr. CIT concluded that the AO had neither made any inquiry nor had the assessee filed any reply and evidence regarding the taxability of the award shown in Note No. 7 of the audited balance sheet.

3. Inquiry and Evidence Regarding Taxability of the Award:
The assessee argued that the AO had raised detailed queries regarding the liabilities shown as Nardana Claim-1 and Nardana Claim-2 and that the assessee had provided detailed submissions and legal evidence. The AO had accepted the explanations provided by the assessee, indicating that proper inquiries were made.

4. Reliance on Judicial Precedents:
The assessee cited various judicial precedents, including decisions by the Hon'ble Apex Court, High Courts, and Tribunals, which held that an order cannot be revised u/s 263 if the AO had made proper inquiries. The assessee also argued that the Pr. CIT failed to appreciate that the award, which was challenged before the court, would be accrued and liable to tax only in the year when the final order was passed by the court.

5. Accrual and Taxability of the Arbitral Award:
The assessee contended that the award amount should be taxed in the year when the final order of the court was pronounced. The assessee had included the income under the award in the total income of A.Y. 2019-20 when the final order was passed by the court. The assessee argued that if the award was taxed in A.Y. 2018-19, appropriate directions should be given to subtract the same from the total income of A.Y. 2019-20 to avoid double taxation.

6. Non-Duplication of Income Taxation:
The assessee emphasized that the same income cannot be taxed twice, and if the award was taxed in A.Y. 2018-19, it should be subtracted from the total income of A.Y. 2019-20. The Tribunal found that the AO had made specific queries and the assessee had provided detailed replies with documentary evidence. The Tribunal concluded that the AO had conducted sufficient inquiries and that the Pr. CIT's revision order was not sustainable.

Conclusion:
The Tribunal quashed the revision order passed by the Pr. CIT and restored the assessment order passed by the AO. The appeal was allowed, and the order was pronounced in the open court on 12.01.2024.