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2024 (7) TMI 954 - AT - Income TaxRevision u/s 263 - allowability of business promotion expenses u/s 37 - as per CIT business promotion expense claimed by the assessee was in the nature of freebies/monetary grant for promoting products and was required to be disallowed, thus AO had passed the assessment order without making proper enquiry and the required addition in respect of this claim - HELD THAT - AO had made the enquiry, applied his mind and came to the conclusion that no disallowance u/s 37 was called for. The Ld. PCIT had not brought anything adverse on record to substantiate her allegation that the claim of the assessee was liable to be disallowed under Section 37 of the Act. PCIT has also not brought out any inadequacy in the enquiry as conducted by the AO in the course of assessment proceeding rather the entire foundation of the order u/s 263 of the Act is found to be based on change of opinion. As per the provision of Section 263 of the Act, the Ld. PCIT is empowered to conduct further enquiry as deemed necessary, but no such enquiry was conducted to prove that the claim of the assessee was not admissible. PCIT has only examined the details and evidences filed before the AO in the course of assessment and on that basis she had a different opinion about the admissibility of the claim. The powers u/s 263 of the Act cannot be exercised only on the basis of change of opinion. It had to be first established that order was erroneous and prejudicial to the interest of the revenue and, this condition is not found fulfilled in this case. Assessee appeal allowed.
Issues Involved:
1. Legality of the PCIT's order under Section 263 of the Income-tax Act, 1961. 2. Compliance with CBDT Circular No. 19/2019. 3. Adequacy of the Assessing Officer's (AO) enquiry and verification of business promotion expenses. 4. Applicability of Section 37 of the Income-tax Act regarding business promotion expenses. 5. Invocation of Explanation 2 to Section 263 of the Income-tax Act. Issue-wise Detailed Analysis: 1. Legality of the PCIT's Order under Section 263 of the Income-tax Act, 1961: The assessee contested the PCIT's order, arguing it was "bad in law" and should be quashed. The PCIT had exercised revisionary powers under Section 263, claiming the AO's order was erroneous and prejudicial to the interest of the revenue due to the improper allowance of business promotion expenses. The tribunal examined whether the AO's order met the conditions of being erroneous and prejudicial to the revenue, as required under Section 263. It was concluded that the AO had conducted a detailed inquiry into the business promotion expenses, and therefore, the PCIT's assumption of jurisdiction under Section 263 was not justified. The tribunal quashed the PCIT's order, stating it was not tenable in law. 2. Compliance with CBDT Circular No. 19/2019: The assessee argued that the PCIT's order did not comply with the requirements of CBDT Circular No. 19/2019. The tribunal found that the AO had considered the CBDT Circular dated 01.08.2012 regarding disallowance of freebies to medical practitioners and their professional associates. The tribunal held that since the AO had made detailed inquiries and found no freebies were given to medical practitioners, the PCIT's reliance on the CBDT Circular was misplaced. 3. Adequacy of the Assessing Officer's Enquiry and Verification of Business Promotion Expenses: The tribunal reviewed the AO's inquiry into the business promotion expenses, which amounted to Rs. 5,12,01,872/-. The AO had issued multiple notices under Section 142(1) of the Act, and the assessee had provided detailed responses, including a breakdown of expenses and supporting documents. The tribunal noted that the AO had examined these details and concluded that no disallowance was necessary. The tribunal emphasized that the AO had applied his mind and conducted a proper inquiry, thus fulfilling the requirements of Section 263. 4. Applicability of Section 37 of the Income-tax Act Regarding Business Promotion Expenses: The PCIT argued that the business promotion expenses should be disallowed under Section 37 of the Act. However, the tribunal found that the AO had considered the nature of the expenses, including advisory fees to doctors, discounts to customers, and other promotional costs. The tribunal concluded that these expenses were not in the nature of freebies or monetary grants and were allowable as business expenditures under Section 37. 5. Invocation of Explanation 2 to Section 263 of the Income-tax Act: The PCIT invoked Explanation 2 to Section 263, claiming the AO's order was passed without proper inquiry and verification. The tribunal held that the AO had conducted detailed inquiries and applied his mind to the issue. The tribunal cited precedents, including CIT vs. Kamal Galani and CIT Vs. Sunbeam Auto Ltd., to support the view that the AO's inquiry was adequate and that the PCIT's invocation of Explanation 2 was not justified. The tribunal concluded that the PCIT's order was based on a mere change of opinion, which is not sufficient grounds for invoking Section 263. Conclusion: The tribunal allowed the assessee's appeal, quashing the PCIT's order under Section 263. The tribunal found that the AO had conducted a proper and detailed inquiry into the business promotion expenses, and the PCIT's order was not justified on legal or factual grounds.
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