2019 (1) TMI 1457 - AT - Income Tax

Revision u/s 263 - sum paid towards pension fund but there is corresponding payment of employer and employee contribution to P.F. - Held that - No dispute about the settled legal proposition as per hon ble apex court s landmark decision in Malabar Industrial Co. Pvt. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT that the legislative expression prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their lordships made it clear that every loss of revenue as a consequence of the Assessing Officer s order cannot be treated as prejudicial to the interest of revenue. The CIT s former remand direction as related to an expenditure head of ₹23,32/- and ledger copy of various loans to be re-verified whereas the PCIT second show cause notice in issue raised two more issues of various other heads of expenditure i.e. car maintenance, car insurance, the business promotion, site expenses employee s contribution to PF and pension etc., His case is that the same had not been examined during original assessment framed which stood revised as per former CIT s order. The PCIT clearly sought to exercises his revision jurisdiction on different issues which had nowhere been raised in first round revision order. Case file suggests that the first round regular assessment had been framed on 16.04.2012 in financial year ending on 31.03.2013 Sec. 263(2) of the Act prescribes limitation in such a case to be after expiry of two years from the end of the financial year in which the order sought to be revised was passed. The Revenue failed to dispute that the said clause states with a negative covenant. The limitation period of two years as per this statutory provision comes to be 31.03.2015 as outer limit i.e. much earlier than earlier to the PCIT s second show cause notices on 10.08.2017. The same is held to be hit by statutory period of limitation therefore. - PCIT s order under challenge directing afresh assessment in his order dated 31.10.2017 is not sustainable. - Decided in favour of assessee

Issues Involved:
1. Validity of the PCIT's exercise of revisional jurisdiction under Section 263.
2. Examination of various expenses claimed by the assessee.
3. Limitation period for the exercise of revisional jurisdiction.
4. Adequacy of the Assessing Officer's inquiry and verification of expenses.

Issue-wise Detailed Analysis:

1. Validity of the PCIT's Exercise of Revisional Jurisdiction under Section 263:
The core issue is whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 263 of the Income Tax Act, 1961, to revise the assessment order. The PCIT issued a show-cause notice on 10.08.2017, contending that the assessment order dated 30.06.2015 was erroneous and prejudicial to the interests of the Revenue. The PCIT argued that the Assessing Officer (AO) had not properly verified various expenses claimed by the assessee, including car maintenance, car insurance, business promotion, site expenses, and employee contributions to PF and pension.

2. Examination of Various Expenses Claimed by the Assessee:
The PCIT's revision focused on the AO's failure to verify specific expenses amounting to ?1,13,09,047/-, including advertisement expenses, business promotion expenses, car hire charges, car maintenance, employer contribution to ESI, messing expenses, rent, salary and bonus, site expenses, theft and damages, tea and tiffin, telephone charges, and traveling and conveyance. The PCIT argued that the AO did not verify these expenses as per the provisions of Section 37(1) and Section 43B of the Income Tax Act. The PCIT also noted discrepancies in the employee contribution to PF and pension amounting to ?78,52,021/-.

3. Limitation Period for the Exercise of Revisional Jurisdiction:
The assessee contended that the PCIT's revision was barred by the limitation period prescribed under Section 263(2) of the Act, which states that the revision must be made within two years from the end of the financial year in which the order sought to be revised was passed. The original assessment order was passed on 16.04.2012, and the limitation period ended on 31.03.2015. The PCIT's second show-cause notice was issued on 10.08.2017, which was beyond the statutory period of limitation. The tribunal agreed with the assessee's contention and held that the PCIT's revision was time-barred.

4. Adequacy of the Assessing Officer's Inquiry and Verification of Expenses:
The tribunal examined whether the AO had conducted adequate inquiries and verification of the expenses claimed by the assessee. The PCIT argued that the AO had failed to make necessary inquiries and verification, rendering the assessment order erroneous and prejudicial to the interests of the Revenue. The tribunal referred to the Supreme Court's decision in Malabar Industrial Co. Pvt. Ltd. vs. CIT, which held that an order is erroneous if the AO fails to make inquiries that are called for in the circumstances of the case. The tribunal also noted that the PCIT's former revision directions had instructed the AO to examine any concomitant issues arising in the process. However, the tribunal found no connection between the issues raised in the first and second rounds of revision and held that the PCIT's order was not sustainable.

Conclusion:
The tribunal concluded that the PCIT's order directing a fresh assessment was not sustainable due to the limitation period and lack of connection between the issues raised in the first and second rounds of revision. The assessee's appeal was allowed, and the PCIT's order dated 31.10.2017 was reversed. The tribunal emphasized that the AO's failure to make inquiries and verification as directed in the first round of revision did not justify the second round of revision on different issues. The order was pronounced in open court on 23/01/2019.

← Previous Next →