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2016 (12) TMI 744 - AT - Income TaxRevision u/s 263 - write off investment - Held that - The facts remain that during a y 2006-07, the assessee has written off the investment of Rs. One crore & claimed it as a revenue expenditure. In the assessment made for ay 2006-07 u/s.143 (3) dated 31.12.2008, the A O has disallowed it as a capital expenditure and that order had attained finality. Out of that one crore , the assessee recovered ₹ 60 lakhs on 31.03.2007, ie during the period relevant to the a y 2007-08 & ₹ 40 lakhs on 03.04 & 30.4.2007, ie during the period relevant to the a y 2008-09. Although, the assessee has recovered ₹ 60 lakhs only in ay 2007-08, recognized it as an income & credited it in its P & L account, but claimed a deduction of Rs. One crore in the computation memo of its revised return , then arrived the total income and declared such total income which was ultimately accepted by the AO in the impugned assessment order. Such an action is not correct as per the ratio relied on by the DR, supra. Thus, there is an error in the impugned assessment order. Alternatively, as held by the Pr. CIT, even if the assessee s argument that when its claim of write off at Rs one crore as an expenditure is not allowed as a deduction in ay 2006-07 on the ground that it was capital in nature, subsequently , when such amounts are recovered by it & was offered as an income in the ays 2007-08 and 2008-09 , then such receipts should also be treated as capital in nature & they should be reduced from the income of the respective year is considered in its favour, even then, the assessee has recovered ₹ 60 lakhs only in ay 2007-08 and offered it as an income in that ay. However, it claimed a deduction of Rs. One crore which was accepted by the AO in the impugned assessment order. Thus, an excess deduction of ₹ 40 lakhs was allowed to the assessee in ay 2007- 08, which is an error and it clearly falls within the scope of section 263 of the Act. - Decided against assessee. Under invoicing - Held that - The FOB rate per weighing metric tonne amounted to Rs,1,955/- (under invoicing to the extent of 53%). The extent of under invoicing was calculated on the basis of information provided by the Customs Department of Marmagao and Panjim ports for the year 2008-09. The Shah Commission report is on the basis of average sale FOB price for the same grade of iron on the same day since it is based on the average freight on board (FOB). On a review of records, the Pr CIT found that the AO has not verified the pricing adopted by the assessee while making exports so as to examine whether there is any under invoicing resorted by them. The A O did not make any enquiries/verification and reconciliation of sales. Since the A O has not considered the issue of under invoicing by conducting necessary enquiries, on the transactions recorded by the Shah commission, the Pr. CIT held that his action resulted in under assessment and the same is erroneous and prejudicial to the interests of Revenue. On the other hand, the assessee could not furnish any material to dislodge the findings of the Pr. CIT to say that the AO has examined this issue and then recorded his findings in the impugned order. When the AO has not examined the impugned issue and did not record a finding in his order, his order clearly falls within the scope of Section 263 of the Act. In pursuance of Section 263, when the Pr. CIT passed an order holding that the assessee can demonstrate before the A O that the said transaction mentioned in the show cause notice did not pertain to them by producing necessary evidences and materials as explained in their submission. The AO should duly consider such evidence and make necessary enquiries and complete the assessment in accordance with law by giving reasonable and sufficient opportunity to the assesse before completing the assessment, such an order could not have been contended as detrimental to the interest of the assessee, as it was always open to the assessee to justify its claim - Decided against assessee.
Issues Involved:
1. Validity of the Pr. CIT’s invocation of Section 263 of the IT Act. 2. Examination of the assessee's claim of investment write-off and recovery. 3. Alleged under-invoicing of export sales. Issue-wise Detailed Analysis: 1. Validity of the Pr. CIT’s Invocation of Section 263 of the IT Act: The Pr. CIT invoked Section 263, considering the Assessing Officer's (AO) acceptance of the assessee's claim as erroneous and prejudicial to the interests of the Revenue. The Pr. CIT argued that the AO failed to verify the assessee's claim of investment write-off and subsequent recovery, which led to an incorrect deduction. The Tribunal upheld the Pr. CIT’s action, emphasizing that the AO’s lack of necessary verification constituted an error under Section 263. 2. Examination of the Assessee's Claim of Investment Write-off and Recovery: - Facts and Background: The assessee wrote off ?1 crore as a revenue expenditure in AY 2006-07, which the AO disallowed, treating it as a capital expenditure. This disallowance became final. In AY 2007-08, the assessee recovered ?60 lakhs and credited it as "income from other sources" but also claimed a ?1 crore deduction in the revised return, which the AO accepted without proper verification. - Pr. CIT’s Findings: The Pr. CIT found the assessee's claim incorrect, as only ?60 lakhs were recovered in AY 2007-08, leading to an excess deduction of ?40 lakhs. The Pr. CIT held that the AO's acceptance of this claim without verification was erroneous and prejudicial to the Revenue. - Tribunal’s Decision: The Tribunal agreed with the Pr. CIT, stating that the AO's failure to verify the claim led to an erroneous and prejudicial assessment order. The Tribunal dismissed the assessee's appeal, finding no merit in its grounds. 3. Alleged Under-invoicing of Export Sales: - Facts and Background: The Pr. CIT, based on the Shah Commission's report, noted that the assessee allegedly under-invoiced iron ore exports to China, leading to a potential loss of revenue. The AO did not verify the pricing adopted by the assessee during the assessment. - Pr. CIT’s Findings: The Pr. CIT held that the AO's failure to investigate the under-invoicing issue rendered the assessment order erroneous and prejudicial to the Revenue. The Pr. CIT directed the AO to re-examine the issue, allowing the assessee to present evidence. - Tribunal’s Decision: The Tribunal upheld the Pr. CIT’s order, emphasizing that the AO's lack of enquiry into the under-invoicing claim justified the invocation of Section 263. The Tribunal found the Pr. CIT’s direction for re-examination appropriate and dismissed the assessee's appeal. Conclusion: The Tribunal dismissed both appeals, affirming the Pr. CIT’s invocation of Section 263 for both AY 2007-08 and 2008-09. The Tribunal found that the AO’s failure to verify the assessee’s claims and investigate the under-invoicing issue justified the Pr. CIT’s actions. The Tribunal emphasized the necessity of proper enquiry and verification by the AO to ensure accurate assessment and protect Revenue interests.
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