2024 (10) TMI 1085 - AT - Income Tax

Revision u/s 263 - AO was erroneous and prejudicial to the interest of the revenue as an amount claimed as filing fee in respect of increased in share capital was wrongly allowed as revenue expenditure - HELD THAT - During the course of proceedings before us, the assessee has also furnished audited financial statement for AY 2016-17 during which share capital of Rs. 10,00,00,000/- was raised and the expenses in respect of share capital had been debited to the P L account under the caption filing fees . During the scrutiny assessment proceedings for AY 2016-17, the said expenses had been allowed as revenue expenditure. In support of the contention that expenditure incurred in raising share capital is revenue in nature, the assessee has placed reliance inter alia on the decision of Navi Mumbai SEZ Private Ltd. 2015 (3) TMI 314 - ITAT MUMBAI - Thus it is held that the expenditure of filing fee was allowed by the AO after requisite examination and , therefore, it cannot be said that the order of the AO was erroneous and/or prejudicial to the interest of the revenue. Assessee had submitted a revised computation showing income which was not examined by the AO - After making requisite inquiry and due application of mind, the AO passed the assessment order at income of Rs. 14,370/- (same as the original returned income). Accordingly, it is seen that issue regarding claim of deduction u/s 35ABB, which was the reason for filing revised return by the assessee, has also been duly examined during the course of assessment proceedings by the AO. We are of the view that the AO had already allowed the claim of the assessee regarding filing expenses being revenue expenditure and the deduction u/s 35ABB after due examination during the assessment proceedings. As such the order of the PCIT u/s 263 holding that order of the AO was erroneous and prejudicial to the revenue is not justified, the same is accordingly quashed. Apeal of the assessee is allowed.

Summary

Issues:
1. Jurisdiction of PCIT in revision based on audit objection.
2. Increase in authorized share capital for meeting working capital needs.

Jurisdiction of PCIT in Revision Based on Audit Objection:
The appeal was filed against the PCIT's order under section 263 of the Income-tax Act, 1961 for AY 2017-18. The appellant challenged the revision by the commissioner, arguing that PCIT lacked jurisdiction as the revision was based on audit objection. The appellant contended that PCIT did not exercise independent discretion and judgment, making the revision unsustainable. The PCIT initiated the revision based on suggestions from the audit department, leading to the appeal seeking to quash the revision order.

Increase in Authorized Share Capital for Meeting Working Capital Needs:
The PCIT invoked revision under section 263 concerning the allowability of expenses related to the increase in authorized share capital. The appellant argued that the increase was for working capital needs, making it a revenue expenditure. The appellant claimed that the AO had taken a plausible view, and two possible views existed on the issue, making revision unwarranted. The PCIT set aside the assessment order, directing a fresh assessment on the share capital issue. The appellant maintained that the AO's order was not erroneous, as it was based on a debatable issue with two possible views. The appellant also highlighted that the revision was solely based on audit objection.

During the proceedings, the appellant provided detailed arguments, emphasizing that the AO's order was not erroneous on debatable issues. The DR supported the PCIT's order, citing a CBDT circular allowing remedial action on audit objections. The DR argued that the revised income declaration rendered the AO's original assessment erroneous and prejudicial to revenue. The tribunal examined the case's facts, including the AO's scrutiny queries and the appellant's responses, showing the examination of the filing fee issue during assessment proceedings.

The tribunal considered the appellant's explanations and supporting documents, including financial statements from a previous assessment year. Relying on precedents, the tribunal held that the AO had correctly allowed the filing fee as a revenue expenditure after thorough examination. The tribunal also addressed the issue of the revised income declaration, noting that the AO had already examined the deduction claim under section 35ABB during assessment proceedings. Consequently, the tribunal concluded that the PCIT's order under section 263 was unjustified, quashing it and allowing the appellant's appeal.

In conclusion, the tribunal found in favor of the appellant, holding that the PCIT's revision order was not justified based on the facts and legal arguments presented during the proceedings. The tribunal emphasized the importance of thorough examination and proper application of tax laws by the assessing officer, leading to the quashing of the PCIT's order.