2015 (2) TMI 71 - HC - Income Tax

Entitlement to claim under section 32AB - Held that - Examination of the facts of the present case shows that so far as the AO is concerned, he did consider the said aspect and disallowed the amount for the purpose of computation under section 32AB for an amount of ₹ 1,96,117/-. The CIT (Appeals) except observing that the AO was not justified in ignoring the actual accounting procedure and denying the deduction of ₹ 1,96,117/-, has not further examined the matter in context to the span and ambit of the period of the assessment year. In the decision of the Tribunal also, there is no consideration except the reproduction of the observations of the CIT (Appeals). The Tribunal has only recorded that the finding recorded by the first appellate authority calls for no interference, but why and in what basis is not considered by the Tribunal. In any case, AO had power or authority to inquire the aspects in relation to a transaction beyond the scope and span of the assessment year, then also, whether the transaction could be considered for the present assessment year or not and what is the nature of the transaction and the effect in the assessment year are also the aspects, which may be required to be considered. The Tribunal being the final fact finding authority needs to reexamine the matter as per the observations made by us herein above and it may not be possible for this Court to consider the aspect of finding of fact in the present appeal for which the scope of judicial scrutiny is limited to substantial question of law. In view of the aforesaid, we find that when the AO had the authority or power to examine, but nature of transaction, effect on the profit of the assessment year and the other incidental aspects, which may touch to the finding of fact, are not examined by the Tribunal, it would be just and proper to remand the matter to the Tribunal for the limited aspect of admissibility of the amount of ₹ 1,96,117/- for the purpose of calculating the investment allowance available under section 32AB of the Act. - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Admissibility of deduction under Section 32AB of the Income Tax Act, 1961.
2. Authority of the Assessing Officer (AO) to scrutinize the admissibility of deductions.
3. Time span and period of assessment year for transactions.

Detailed Analysis:

1. Admissibility of Deduction under Section 32AB of the Income Tax Act, 1961:
The central issue was whether the Appellate Tribunal was correct in allowing the assessee's claim under Section 32AB of the Act. The respondent company filed a return declaring an income of Rs. 1,15,57,730/-, later revised to Rs. 1,14,49,920/-, including a claim for a previous year adjustment of Rs. 1,96,117/-. The AO disallowed this claim, stating it pertained to the previous year. The Commissioner of Income Tax (Appeals) accepted the assessee's contention, which was upheld by the Tribunal. The High Court needed to examine the correctness of this decision.

2. Authority of the Assessing Officer (AO) to Scrutinize the Admissibility of Deductions:
Section 32AB involves the calculation of investment deposit accounts based on profits from business or profession. The AO has limited power to scrutinize the admissibility of items in the audited Books of Account, except for specific items listed in Section 32AB(3). The High Court noted that the AO cannot re-evaluate the admissibility of items unless they pertain to the root of the matter, such as transactions outside the assessment year.

3. Time Span and Period of Assessment Year for Transactions:
The High Court emphasized that income tax is charged for the assessment year, defined as the 12 months starting from April 1st. The AO can examine transactions outside this period if they affect the assessment year's profits. The AO disallowed Rs. 1,96,117/- as it related to the previous year. The CIT (Appeals) and Tribunal did not adequately consider whether the transaction pertained to the assessment year. The High Court found that the AO had the authority to examine transactions beyond the assessment year if they impacted the profits for the relevant year.

Conclusion:
The High Court set aside the Tribunal's order and remanded the matter for re-examination of the Rs. 1,96,117/- adjustment and its effect on the allowance under Section 32AB. The Tribunal was directed to decide the appeal within six months, considering the observations made by the High Court. The appeal was partly allowed, with no order as to costs.