2015 (5) TMI 121 - HC - Income Tax

Revision u/s 263 - a complete consideration of the record would reveal that the expenditures claimed were in respect of payments made to related party transactions which had not been taken into consideration at the original assessment stage - Held that - CIT's order does not address the appellant's objections both as to the assumption of jurisdiction as well as the merits. As is evident from the operative portion of the CIT's order itself, the merits were remitted for consideration to the AO. However, as regards the assessee's objections against the Show Cause Notice under Section 263 was concerned, there are no findings. Given these facts, the ITAT's order upholding assumption of jurisdiction could not have been made. In that sense, the assessee is correct in contending that the remand on the question of deciding objections had been rendered academic. Thus the impugned order is modified; it is open to the assessee to contend both on the correctness and legality of assumption of jurisdiction as well as the merits of the items sought to be taxed in the revisional proceedings - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice seeking to revise the assessment for AY 2006-07.
2. Jurisdiction of the CIT under Section 263 of the Income Tax Act.
3. Proper consideration of objections raised by the assessee.
4. Assessment of expenditures related to payments made to related party transactions.

Analysis:

1. The appellant challenged the notice of the CIT dated 03/04.09.2009 seeking to revise the completed assessment for AY 2006-07. The ITAT upheld the initiation of revision proceedings and remitted the matter for further consideration.

2. The CIT, under Section 263 of the Income Tax Act, issued a Show Cause Notice alleging that certain expenditures claimed by the appellant were allowed without due enquiry by the Assessing Officer. The CIT directed a fresh decision on the allowability of total expenditure. The ITAT affirmed the CIT's assumption of jurisdiction, stating that the assessment order was erroneous and prejudicial to the revenue.

3. The senior counsel for the assessee argued that the remand did not address the basic grievance against the CIT's notice and that the CIT did not record findings on the objections raised by the assessee. The ITAT's affirmation of the assumption of jurisdiction was deemed untenable as the merits were remitted for consideration to the AO.

4. The counsel for the revenue contended that the expenditures claimed were related to payments made to related party transactions, which were not considered in the original assessment. The Court found that the CIT's order did not address the appellant's objections regarding the assumption of jurisdiction and the merits. The ITAT's decision upholding the assumption of jurisdiction was deemed incorrect.

In conclusion, the Court modified the impugned order, allowing the assessee to challenge both the jurisdiction of the CIT and the merits of the items sought to be taxed in the revisional proceedings. The appeal was allowed to the extent of the above modifications.