2016 (5) TMI 417 - AT - Income Tax

Revision u/s 263 - allowability of expenditure challenged by CIT (A) - Held that - CIT had not given a concluding finding about allowability of the expenditure but has observed that the AO has not examined the issue from the point of allowability and the nature of expenditure. Even genuineness of the expenditure has not been examined by the AO while passing the impugned order. Thus it is clear that it is a case of lack of inquiry on the part of the AO while passing the impugned assessment order u/s 143(3). Further, neither the AO has raised any query nor the assessee furnished the relevant record and details pertaining to the issue under consideration. There is no quarrel that complete lack of inquiry on the part of the AO renders the order of the AO erroneous and so far as prejudicial to the interest of the revenue. Thus, in the facts and circumstances of the case, we find that when there is a lack of inquiry on the part of the AO as well as non-application of mind while passing assessment order and particularly on the issue which is the subject matter of the revision proceedings, then the CIT was justified in invoking the jurisdiction u/s 263 of the Act The CIT has not given any concluding finding on the allowability of the said expenditure for want of complete details and record therefore, the issue was remitted to the AO with the direction to be decided in accordance with law. When the assessee has not furnished complete details of this expenditure, we do not find any error or illegality in the impugned order of the CIT remanding the issue to the record of the AO for making proper inquiry and verification. - Decided against assessee

Summary

Issues:
1. Validity of revision order u/s 263 of the IT Act, 1961.
2. Allowability of prior period expenses claimed by the assessee.
3. Lack of examination and verification by the Assessing Officer (AO) on the issue of prior period expenses.

Issue 1: Validity of revision order u/s 263 of the IT Act, 1961:
The Appellate Tribunal ITAT BANGALORE addressed the appeal challenging the revision order passed by the Commissioner of Income Tax (CIT) u/s 263 of the IT Act, 1961. The CIT initiated proceedings as the AO did not consider the allowability of prior period expenses claimed by the assessee, leading to the order being deemed erroneous and prejudicial to revenue interests. The Tribunal upheld the CIT's decision, emphasizing the lack of inquiry by the AO and the necessity for proper examination of the issue. The Tribunal found the CIT's invocation of jurisdiction u/s 263 justified due to the AO's failure to scrutinize the matter adequately.

Issue 2: Allowability of prior period expenses claimed by the assessee:
The assessee contended that the prior period expenses were allowable revenue expenditure, as they were incurred by various branches across the country. The expenses included various items like travel bills, repair, maintenance, and utility bills. The assessee argued that since the liability was crystallized in the relevant year and payments were made accordingly, these expenses should be considered allowable. The Tribunal noted the absence of a conclusive finding on the allowability of the expenditure due to incomplete details provided by the assessee. The Tribunal upheld the CIT's decision to remand the issue to the AO for proper inquiry and verification.

Issue 3: Lack of examination and verification by the Assessing Officer on the issue of prior period expenses:
The Tribunal observed that the AO did not examine or verify the issue of prior period expenses while passing the assessment order. The assessee's contentions regarding the nature of the expenditure and its allowability were not adequately addressed by the AO. The Tribunal highlighted the lack of inquiry and non-application of mind by the AO, leading to the order being considered erroneous and prejudicial to revenue interests. The Tribunal agreed with the CIT's decision to remand the issue to the AO for a thorough examination and decision in accordance with the law.

In conclusion, the Appellate Tribunal upheld the CIT's decision to invoke jurisdiction u/s 263, remanding the issue of prior period expenses to the AO for proper examination and verification. The appeal challenging the revision order was dismissed, emphasizing the importance of thorough inquiry and verification in tax assessment proceedings.