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2016 (3) TMI 643 - AT - Income TaxRevision u/s 263 - Held that - AO has applied his mind or not need not necessarily be determined from what has been stated in the assessment order alone, it has to be examined as to whether any inquiry was at all conducted by the AO. There exists a difference between lack of inquiry and inadequate inquiry. If there were any inquiry, even inadequate that would not give an occasion to exercise jurisdiction u/s 263 of the said Act. Accordingly, order passed by Ld. CIT u/s 263 of the Act is reversed hence, ground No. 1 to 6 raised by assessee is allowed. Regarding the issue of remuneration paid to the employees CIT found that necessary enquiries were not made by AO at the time of assessment as required u/s. 40A(2)(b) of the Act. However we find that the provisions of section 40A(2)(b) does not apply in the instant case as the payment has not been made to the persons referred in the said section. Besides the ld. AR submitted that the necessary enquiry has been made by the AO at the time of assessment. On the other hand the ld. DR failed to controvert the arguments of the ld. AR. In view of we reverse the order of the ld. CIT(A) under section 263 of the Act. - Decided in favour of assessee
Issues Involved:
1. Assumption of jurisdiction under section 263 by the Commissioner of Income Tax (CIT). 2. Nature and justification of personnel recruitment expenses. 3. Classification and treatment of inter-company loan/security deposit. 4. Applicability of Minimum Alternate Tax (MAT) provisions. 5. Payment of remuneration to key management personnel under section 40A(2)(b). Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction under Section 263: The assessee challenged the jurisdiction assumed by the CIT under section 263 of the Income Tax Act, 1961, arguing that the order passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the revenue. The CIT, however, found that the AO had failed to conduct necessary inquiries regarding several expenses, thereby rendering the assessment order erroneous and prejudicial to the revenue's interest. 2. Nature and Justification of Personnel Recruitment Expenses: The assessee claimed personnel recruitment expenses amounting to Rs. 22,87,960 in the profit and loss account, a significant increase from the previous year's Rs. 1410. The CIT questioned the nature of these expenses, suspecting them to be personal rather than personnel-related. The assessee clarified that these were indeed recruitment expenses paid to two consultants, ABC Consultants Pvt. Ltd. and Info Edge India Pvt. Ltd. (naukri.com). The AO had issued a notice under section 133(6) to ABC Consultants for confirmation, which was duly provided. 3. Classification and Treatment of Inter-Company Loan/Security Deposit: The CIT identified an interest-free loan of Rs. 42,79,700 provided to M/s Thiess Mines, while the company paid Rs. 1.85 crores in interest on borrowed funds. The assessee contended that this amount was not a loan but a security deposit with RDB Two Thousand Plus Ltd., Kolkata, for office premises. The AO had verified the details of the security deposit during the assessment. 4. Applicability of Minimum Alternate Tax (MAT) Provisions: The CIT noted that the AO had not considered the provisions of MAT on the book profit of Rs. 23,41,956. The assessee argued that there was no MAT liability due to brought forward business losses and unabsorbed depreciation amounting to Rs. 108.39 lakhs, which exceeded the book profit. The AO had reviewed the MAT computation during the assessment. 5. Payment of Remuneration to Key Management Personnel under Section 40A(2)(b): The CIT questioned the payment of Rs. 124.12 lakhs to key management personnel, suspecting it to be excessive and invoking section 40A(2)(b). The assessee justified the remuneration, citing the specialized skills and rich experience of the personnel, who were senior mining professionals with no shareholding in the company. The AO had scrutinized the employee expenses, including TDS details, during the assessment. Tribunal's Findings: The Tribunal found that the AO had conducted sufficient inquiries during the assessment under section 143(3). The CIT's order was deemed invalid as the AO had made necessary inquiries, and the Tribunal reversed the CIT's order under section 263. The Tribunal cited precedents, including the Hon'ble Allahabad High Court's decision in Principal Commissioner of Income Tax vs. M/s Ashok Handloom Factory Pvt. Ltd., emphasizing that the CIT can exercise jurisdiction under section 263 only where no inquiry is made by the AO. The Tribunal also referred to decisions by the Hon'ble Delhi High Court, distinguishing between lack of inquiry and inadequate inquiry, concluding that the AO's inquiries were adequate. Conclusion: The Tribunal allowed the assessee's appeal, reversing the CIT's order under section 263, and upheld the AO's original assessment order. The Tribunal found that the AO had conducted necessary inquiries, and the CIT's assumption of jurisdiction was unwarranted. The order was pronounced in open court on 10/02/2016.
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