2014 (1) TMI 22 - AT - Income Tax

Revision u/s 263 of the Act Disallowance u/s 40(a)(ia) of the Act Held that - The revision order is not sustainable in law for the very elementary reason that the grounds on which order was subjected to revision are different vis- -vis the grounds on which revision proceedings have been initiated - the conclusion drawn in the revision proceedings are different than the reasons for which revisions proceedings were initiated - In the show cause notice the CIT has clearly noted that the assessment records indicate the disallowance of expenditure u/s 40(a)(ia) of the Act was to be on the basis of invoking the provision of section 194C of the Act, in so far as the AO had after verification disallowed a portion thereof not identified that in case the disallowance cannot be made u/s 40(a)(ia) of the Act - Reasoning by the CIT for re-examination and re-verification by the AO on the order is a fact which the CIT himself is not clear to the extent that his justification in assuming jurisdiction u/s 263 of the IT Act. Relying upon VESUVIUS INDIA LIMITED Versus COMMISSIONER OF INCOME TAX 2012 (6) TMI 510 - ITAT, KOLKATA - disallowance to be made whether could be considered in isolation but without importing in other provisions of Income tax Act, in so far as, the cart cannot be put before the horse - The proceeding should begin on the basis of assessment records available which are the facts brought on record by the AO on such order when the disallowance having been made cannot be further deliberated upon by the CIT to give a direction to disallow the claim either u/s 40(a)(ia) of the Act and if not u/s 40A(3) of the Act. The AO after having carried out adequate enquiries and having verified the claim of expenditure under the provision of section 40(a)(ia) of the Act had partly disallowed which disallowance have been appealed before the First Appellate Authority cannot be thrust upon the AO for re-consideration in the line of holding a view which view as per the show cause notice and as per the deliberation in the order differ order u/s 263 set aside Decided in favour of Assessee.

Summary

Issues involved:
Assumption of jurisdiction under section 263 of the Income Tax Act based on disallowance of expenses under section 40(a)(ia) and section 194C.

Detailed Analysis:

1. Assumption of Jurisdiction under Section 263:
The appeal was filed by the assessee challenging the jurisdiction assumed by the ld. Commissioner of Income Tax (CIT) under section 263 of the Income Tax Act. The CIT directed the Assessing Officer (AO) to verify the disallowance of expenses under section 40(a)(ia) of the Act related to payments made to various parties. The CIT noted that the AO had not considered the TDS provisions under section 194C for the payments made by the assessee. The CIT, in his order, emphasized the need for re-examination and re-verification of the expenses to determine if they were allowable deductions. The appellant argued that the CIT's order was not justifiable as the conditions for invoking section 263 were not met. The appellant contended that the CIT's order was based on different grounds than those raised in the show cause notice, rendering it unsustainable in law. The appellant also highlighted that the CIT did not consider the explanations provided by the appellant in response to the show cause notice.

2. Arguments and Submissions by the Assessee:
The appellant submitted detailed arguments explaining that the expenses incurred were for hiring machinery and transport services, and not on account of any contractual obligation with the owners. The appellant contended that the conditions for invoking sections 40(a)(ia) and 194C were not met in this case. The appellant further argued that the CIT's order deviated from the grounds originally raised in the show cause notice, indicating a shift in the CIT's stand. The appellant cited relevant case laws to support the contention that the CIT's exercise of revision powers on extraneous grounds was not sustainable in law. The appellant emphasized that the CIT failed to address the issues raised in the show cause notice and did not establish any error or prejudice to revenue in the impugned order.

3. Decision of the Tribunal:
After hearing the contentions of both parties and examining the assessment records, the Tribunal found that the CIT's revision order was not sustainable in law. The Tribunal noted that the grounds on which the order was revised differed from the grounds on which the revision proceedings were initiated. The Tribunal emphasized that the CIT's conclusion in the revision proceedings did not align with the reasons for initiating the revision. The Tribunal agreed with the appellant's argument that the CIT's order imposed a different view than what was acceptable to the AO based on the assessment records. The Tribunal relied on a previous decision by the ITAT 'B' Bench Kolkata to support the view that the disallowance of expenses should be based on facts brought on record by the AO and not on new reasoning introduced by the CIT. Consequently, the Tribunal allowed the appeal filed by the assessee and quashed the order passed under section 263 of the Income Tax Act.

In conclusion, the Tribunal's decision emphasized the importance of aligning the grounds for revision with the original reasons for initiating the revision proceedings and ensuring that the assessment records are the basis for any disallowance of expenses under relevant provisions of the Income Tax Act.