2018 (5) TMI 501 - AT - Income Tax

Revision u/s 263 - non discussion of the issues - Payment to SCPL, Loss on account of exchange fluctuation, Reimbursement of travelling expenses not claimed by the assessee and Gifts received by the assessee from his father - Held that - Order was passed by the AO under section 143(3) of the Act after conducting necessary enquiries and considering the submission filed by the assessee during the assessment proceedings. It is undisputed fact that the order the AO was nonspeaking and returned income was accepted under the assessment proceedings but in our considered view non discussion of the issues in the assessment order cannot render the order as erroneous and prejudicial to the interest of Revenue on account of non-verification of the issues. On perusal of order sheet entries maintained by the CIT u/s 263 of the Act it was revealed that the necessary details were called for by the Ld CIT which were duly filed by the assessee. Thereafter the order was passed by the Ld CIT u/s 263 holding the order of the AO as erroneous in so far prejudicial to the interest of the revenue in respect of the aforesaid items. The copies of the order sheet entries is available on record. From the order sheet of the Ld CIT we note that that is no allegation that order of the AO in respect of the aforesaid items is erroneous in so far prejudicial to the interest of Revenue. Consequently it can be inferred that the order of the AO has been held as erroneous in so far prejudicial to the interest of Revenue in respect of the aforesaid items without giving portability to the assessee. Therefore in such circumstances we are of the view that the Ld CIT has exceeded his jurisdiction u/s 263 - Decided in favour of assessee

Issues Involved:

1. Legality of the Principal Commissioner of Income Tax (Pr. CIT) setting aside the entire assessment order.
2. Invocation of Section 263 by the Pr. CIT.
3. Nature of expenses (capital vs. revenue) incurred by the assessee.
4. Verification of various claims and expenses by the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Legality of the Principal Commissioner of Income Tax (Pr. CIT) setting aside the entire assessment order:

The assessee argued that the Pr. CIT erred in setting aside the entire assessment order when the show cause notice only indicated errors related to two issues: legal charges and finance charges. The Tribunal agreed that the Pr. CIT's action was arbitrary and not justified, as the entire assessment order should not have been set aside based on limited issues.

2. Invocation of Section 263 by the Pr. CIT:

The Pr. CIT invoked Section 263, claiming the assessment order was erroneous and prejudicial to the interest of Revenue. The Tribunal examined whether the AO had made proper inquiries and verifications during the assessment proceedings. It was found that the AO had indeed made inquiries, and the assessee had provided detailed responses and documentation. Therefore, the invocation of Section 263 by the Pr. CIT was deemed unjustified.

3. Nature of expenses (capital vs. revenue) incurred by the assessee:

The Pr. CIT contended that the expenses incurred by the assessee under the heads of finance charges and legal expenses were capital in nature, as they related to acquiring rights in immovable properties. The Tribunal, however, found that the expenses were incurred in the ordinary course of business and were revenue in nature. The agreement between the assessee and the legal heirs of Shri Mohan Lal Kocher did not guarantee the acquisition of immovable properties but was contingent on the outcome of litigation. Thus, these expenses were correctly claimed as revenue expenses.

4. Verification of various claims and expenses by the Assessing Officer (AO):

The Pr. CIT alleged that the AO had not verified several claims, including set-off of brought forward losses, capital contributions, disallowance under Section 14A, and negative bank balances. The Tribunal found that the AO had indeed made inquiries and the assessee had provided relevant details during the assessment proceedings. The Tribunal emphasized that non-discussion of these issues in the assessment order does not imply non-verification. Additionally, some issues raised by the Pr. CIT were not part of the original show cause notice, violating the principles of natural justice.

Conclusion:

The Tribunal quashed the order passed by the Pr. CIT under Section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the interest of Revenue. The Tribunal emphasized that the AO had made necessary inquiries and verifications, and the expenses claimed by the assessee were revenue in nature. The appeal of the assessee was allowed.

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