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2011 (1) TMI 1116 - AT - Income TaxRevision u/s 263 - disallowance towards motor car expenses, telephone expenses - Held that - The assessee-firm vide letter dated October 7, 2008 submitted complete details of sales of plot, closing stock of units of the construction project known as Sangeeta along with various supporting evidence. Similarly, quantitative details of direct and indirect expenses were even given vide letter dated October 2, 2008. A note explaining the provisions for construction expenses along with the details of the provisions were furnished. As it is not the case of the Commissioner while passing the order under section 263, that the Assessing Officer should have written the order more elaborately. The above extracts from the assessment record demonstrate that the Assessing Officer had called for details and after examining the same, had accepted the claims of the assessee. When such an exercise has been done, the conclusion drawn by the Assessing Officer, cannot be said to be erroneous. In favour of assessee.
Issues Involved:
1. Allowability of the provision for construction expenses. 2. Scope of the show-cause notice under section 263. 3. Satisfaction of the Commissioner of Income-tax. 4. Application of independent mind by the Commissioner of Income-tax. 5. Prejudice to the interests of the Revenue. 6. Plausibility of the Assessing Officer's view. 7. Nature of the expenditure (contingent liability). Issue-wise Detailed Analysis: 1. Allowability of the provision for construction expenses: The Commissioner of Income-tax (CIT) took the view that the provision for construction expenses for the period April 1, 2006, to October 27, 2006, represented a contingent liability and was not allowable. The assessee argued that this liability was accrued and should be allowed as an expenditure. The Tribunal found that the Assessing Officer (AO) had called for and examined detailed information about the project and the expenses before allowing the claim. The Tribunal referenced the Supreme Court decision in Calcutta Co. Ltd. v. CIT, which supported the allowability of such expenses in arriving at the profits and gains of the business. 2. Scope of the show-cause notice under section 263: The assessee contended that the CIT expanded the scope of the show-cause notice beyond what was initially raised. The Tribunal agreed with the assessee, noting that the CIT's order included issues not mentioned in the original show-cause notice, such as the delay in filing the return of income and the examination of evidence for the entire project. 3. Satisfaction of the Commissioner of Income-tax: The assessee argued that the review was based on an audit objection and not the CIT's satisfaction. Citing case law, the Tribunal emphasized that the satisfaction that the order is erroneous and prejudicial to the interests of the Revenue should be that of the CIT. The Tribunal found that the CIT did not demonstrate his independent satisfaction. 4. Application of independent mind by the Commissioner of Income-tax: The Tribunal noted that the CIT's order indicated a need for further verification rather than a clear conclusion that the AO's order was erroneous. The Tribunal referenced the decision in CIT v. Kanda Rice Mills, which held that the CIT must apply his independent mind. 5. Prejudice to the interests of the Revenue: The assessee argued that the CIT's order did not show how the AO's decision was prejudicial to the interests of the Revenue. The Tribunal found no indication in the CIT's order that allowing the expenditure was prejudicial to the Revenue, referencing CIT v. Gabriel India Ltd. and CIT v. Ganpat Ram Bishnoi. 6. Plausibility of the Assessing Officer's view: The Tribunal noted that the AO had taken a plausible view after examining the details provided by the assessee. It referenced the case of Prudential Assurance Co. Ltd. v. Director of Income-tax, which supports the principle that a plausible view taken by the AO should not be revised under section 263. 7. Nature of the expenditure (contingent liability): The assessee contended that the expenditure was not a contingent liability. The Tribunal agreed, referencing the Supreme Court decision in Bharat Earth Movers v. CIT, which supports the allowability of accrued liabilities. Conclusion: The Tribunal quashed the order passed under section 263, allowing the appeal of the assessee. The Tribunal found that the AO had called for and examined detailed information before making the assessment, and the CIT did not demonstrate that the AO's order was erroneous and prejudicial to the Revenue. The Tribunal emphasized that the CIT cannot expand the scope of the show-cause notice and must apply his independent mind.
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