2014 (2) TMI 191 - AT - Income Tax

Jurisdiction to entertain the petition - Held that - CIT has not given any finding on merit, whether the interest subsidy has to be assessed during the impugned assessment order or not the Tribunal does not have any jurisdiction to examine the issue in an appeal filed against the order passed u/s. 263 of the Act. Method of accounting - Held that - the assessee has adopted mercantile system of accounting method for computation of the income under the head Income from business or profession . But for computing the income under the same head of income from interest subsidy, the assessee has adopted the cash system, which is not permissible or sustainable. In our opinion, under the law there cannot be even two views possible that the assessee can adopt different system of accounting for bringing to tax the interest subsidy under the head Income from business or profession . Doctrine of Merger - merger of the issues - Revision u/s 263 of the Act Held that - if we look into Explanation (c) of section 263 of the Act, it is apparent that Explanation (c) empowers the CIT to execute power u/s. 263 of the Act on such matter as has not been considered and decided in appeal. The issue relating to whether the interest subsidy is chargeable on receipt basis or on accrual basis has not been decided by the CIT(A). - the submission made by the Ld. AR does not have any legs to stand. In view of this - the CIT has rightly exercised his jurisdiction u/s. 263 of the Act. - order of CIT confirmed - Decided against the assessee.

Summary

Issues:
Challenge of order passed u/s. 263 of the Income-tax Act, 1961 regarding taxing of interest subsidy on accrual basis and validity of the order.

Analysis:
1. The appeal was filed against the CIT's order under section 263 of the Act. The CIT set aside the assessment order as the AO did not examine the issue of taxing interest subsidy on accrual basis despite the assessee following the mercantile system of accounting. The Tribunal found that it did not have jurisdiction to examine the issue on merit in an appeal against the order passed under section 263. The Tribunal dismissed the ground taken by the assessee on merit against the order passed under section 263.

2. The issue of challenging the order passed under section 263 was examined. The CIT issued a notice to the assessee stating that the interest subsidy should have been offered as income in the impugned assessment year due to the mercantile system of accounting. The assessee contended that it consistently followed the receipt method for interest subsidy and the AO's order was not erroneous. The Tribunal noted the provisions of section 145 of the Act and found that the assessee adopting a cash system for interest subsidy was not permissible. The Tribunal held that the AO's order was erroneous and prejudicial to the revenue.

3. The Tribunal considered the argument that there was a merger of issues in the AO's order with the CIT(A)'s order. It was found that the issue before the CIT(A) was different from the issue of whether interest subsidy should be taxed on accrual basis. As the CIT(A) did not decide on the taxability of interest subsidy on accrual basis, the Tribunal confirmed the CIT's order under section 263. The appeal of the assessee was dismissed, confirming the CIT's order.

In conclusion, the Tribunal upheld the CIT's order under section 263, finding the AO's treatment of interest subsidy under the cash system as erroneous and prejudicial to revenue. The Tribunal clarified that the CIT had rightly exercised jurisdiction under section 263, and the appeal was dismissed.