2016 (8) TMI 641 - AT - Income Tax

Revision u/s 263 - Held that - It is not necessary for a CIT to specifically say that the order passed by the AO was erroneous and prejudicial to the interests of Revenue when such order was passed without application of mind. This is for the simple reason that an order passed without enquiry by itself makes such order erroneous and prejudicial to the interests of Revenue. It does not matter much that CIT did not specifically mention the AO s order as erroneous and prejudicial, when he had opened his mind and made observations which are pregnant enough to show such a state of affairs. When an assessing officer who is duty bound under law to carry out certain enquiries on a return filed by an assessee, does not do it in a manner a prudent person would have done, if placed in such a authority, this in our opinion, would definitely make the order erroneous and prejudicial to the interests of Revenue. The CIT had only set aside the assessment and directed the AO to pass a fresh order after giving an opportunity to the assessee. Considering all these, we have no hesitation in upholding the order of CIT. Disallowance as capital expenditure - Held that - Disallowance made by the AO was for a reason that advances written off by the assessee were for purchasing capital assets. Similar issue had come up in the case of Khoday India Ltd, which was a sister concern of the assessee. The claim was allowed by the Tribunal on assessee s appeal and the matter was carried to the Hon ble jurisdictional High Court wherein held that since Section 37 does not incorporate such a condition and it expressly excludes all expenditure in the nature of capital expenditure, the contention raised by the learned counsel for the respondent cannot be accepted and hence, the substantial questions of law raised in this appeal have to be answered in favour of the appellant. Accordingly, the order of the tribunal is set aside by allowing his appeal and answering the questions of law in favour of the revenue. Disallowance of expenditure incurred in an earlier year - Held that - AO has listed the items of expenditure at page 3 of the assessment order. The dates of expenditure clearly show that all these pertained to an earlier year. Another contention taken by the assessee is that some of the amounts were shown twice. The amounts seen as repeating are ₹ 292/- paid to Ernakulam Sales Tax and ₹ 8,553/- paid at Jaipur as sales-tax. One other argument taken by the assessee is that Customs Duty of ₹ 4,08,419/- is included another sum of ₹ 5,29,000/- paid on behalf of another party. In our opinion assessee was unable to produce evidence for any of the above claims before any of the lower authorities. When a claim that an expenditure normally not allowable, has to be allowed, there lies a strict onus on the assessee to prove its claim. Assessee having not done so AO in our opinion was justified in dismissing the claim. As for the decision of coordinate bench in the case of Khoday Breweries Ltd for A. Y. 1998-99 relied on by the assessee, facts were different. Resultantly, ground.2 of the assessee is dismissed.

Issues Involved:
1. Jurisdiction under Section 263 of the Income-tax Act, 1961.
2. Taxability of compensation received as capital receipt.
3. Disallowance of advances written off.
4. Disallowance of expenditure incurred in an earlier year.
5. Disallowance of unexplained expenditure.

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income-tax Act, 1961:
The primary issue was whether the Commissioner of Income Tax (CIT) had the jurisdiction to revise the order of the Assessing Officer (AO) under Section 263 of the Act. The CIT issued a notice to the assessee stating that the AO had not applied his mind to the taxability of ?6.29 crores received as compensation. The CIT set aside the AO's order, directing a fresh assessment after giving the assessee an opportunity for a personal hearing. The tribunal upheld the CIT's jurisdiction, noting that the AO had failed to conduct any enquiry into the capital receipt of ?6.29 crores, thus rendering the order erroneous and prejudicial to the interests of the Revenue.

2. Taxability of Compensation Received as Capital Receipt:
The assessee received ?6.29 crores as compensation for not exercising the right of specific performance and claimed it as a capital receipt based on the judgment of the Bombay High Court in Bombay Burmah Trading Corporation Ltd. v. CIT [81 ITR 777]. The CIT found the cancellation agreement suspicious and noted that the AO had not examined the issue. The tribunal agreed with the CIT, stating that the AO had not enquired into the taxability of the compensation, thus justifying the revision under Section 263.

3. Disallowance of Advances Written Off:
The assessee claimed a deduction for advances written off amounting to ?36,50,750/-, arguing it was a business loss. The AO disallowed the claim, stating it was capital expenditure. The tribunal referred to the jurisdictional High Court's decision in CIT v. Khoday India Ltd [ITA.10/2005], which upheld the disallowance of advances written off for the purchase of capital assets. Consequently, the tribunal dismissed the assessee's ground, affirming the disallowance.

4. Disallowance of Expenditure Incurred in an Earlier Year:
The AO disallowed ?5,29,000/- of expenditure incurred in an earlier year. The tribunal noted that the assessee failed to provide evidence for the expenditure before the lower authorities. The tribunal upheld the AO's disallowance, emphasizing the onus on the assessee to prove such claims.

5. Disallowance of Unexplained Expenditure:
The AO disallowed ?7,27,304/- due to the lack of explanation from the assessee. The tribunal found that the assessee did not provide any supporting evidence for the expenditure before any of the lower authorities or the tribunal itself. Therefore, the tribunal upheld the disallowance, dismissing the assessee's ground.

Conclusion:
Both appeals by the assessee were dismissed. The tribunal upheld the CIT's jurisdiction under Section 263, affirmed the disallowances made by the AO, and emphasized the need for proper enquiry and substantiation of claims by the assessee. The tribunal's decision reinforced the importance of detailed scrutiny and justification in tax assessments to avoid erroneous and prejudicial outcomes to the interests of the Revenue.

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