2022 (1) TMI 97 - HC - Income Tax

Revision u/s 263 by CIT - assessee had credited a sum as sundry income in the profit and loss account and for the purpose of computation of partner's salary allowable u/s 40 b and said income being income from other sources should be excluded from the book profit and the assessee has debited in profit and loss account on PWC Global Service charges and the same is not allowable as it has no direct or indirect nexus in running and functioning of business of the assessee and, therefore, the amount should be disallowed - HELD THAT - Tribunal after examining the benefits found that detailed submissions and materials were available on record with regard to the sundry income credited in the profit and loss account and the AO has secured the required details and has not made any adverse observation in its order. Therefore, the Tribunal concluded that the AO was satisfied that the income in question had direct nexus with the business of the assessee and, therefore, had to be regarded as income from business. Tribunal found that it is not disputed that income from sale of scrap, foreign exchange fluctuation gain are inextricably linked to the professional income and have to be regarded as income from profession. With regard to the payment of service charges to M/s. Price Water House Coopers, the required details were filed by the assessee and looked into by the Assessing Officer, who has raised the specific queries on those charges. Tribunal was satisfied that necessary inquiries were made by the Assessing Officer. Furthermore, the Tribunal specifically noted that similar charges have been allowed as a direction in the earlier years and, hence, there was no reason for the Assessing Officer to doubt the nexus of those expenses with the business of the assessee. With regard to payment of policy premium to cover risk damages owing to professional negligence, the Tribunal held that it has direct nexus to the business of the assessee. In this regard, the Tribunal has noted the submissions of the assessee that similar expenditure had been allowed during the assessment years 2005-06 to 2008-09. Therefore, the Tribunal was satisfied that necessary inquiries were made and the order passed by the Assessing Officer cannot be treated to be erroneous nor prejudicial to the interest of revenue. Tribunal also held that merely by stating that there is no inquiry by the Assessing Officer would not be sufficient for the CIT to assume jurisdiction under Section 263 of the Act but a finding has to be rendered as to how and in what manner the inquiry was required to be done which the Assessing Officer had failed to do. With regard to the payment of service charges to Price Water House Coopers services the Tribunal noted that the assessee vide letter dated 25.3.2014 had given the proper explanation which found place in the paper book filed, which were the materials already available on record. Thus, the Tribunal was satisfied on facts that the Assessing Officer has inquired into the matter to the extent required the documents were available with the Assessing Officer and, accordingly, held that the assessment order cannot be treated to be erroneous or prejudicial to the interest of revenue.- Decided against revenue.

Summary

Issues:
1. Whether the Tribunal erred in quashing the order under Section 263 of the Income Tax Act?
2. Whether the Tribunal was justified in not relying on objections raised by the revenue audit regarding certain debits in the profit and loss account?
3. Whether the Assessing Officer's failure to examine certain points made the assessment erroneous and prejudicial to the revenue's interest?

Analysis:
1. The appeal was filed by the Revenue challenging the order passed by the Income Tax Appellate Tribunal. The Tribunal quashed the order under Section 263 of the Income Tax Act. The Revenue contended that the assessing officer's order sought to be revised was not erroneous or prejudicial to the revenue's interest due to lack of necessary inquiry. The High Court noted the substantial questions of law raised by the Revenue and considered arguments from both sides. The Court examined the CIT's order and the Tribunal's decision, ultimately upholding the Tribunal's findings that the assessing officer had conducted necessary inquiries, and the order was not erroneous or prejudicial to the revenue's interest.

2. The Tribunal did not rely on objections raised by the revenue audit regarding certain debits in the profit and loss account. The objections included disallowance of certain charges and incorrect computation of partners' salary under Section 40(b) of the Income Tax Act. The CIT found these debits to be not allowable as they lacked a direct or indirect nexus with the business. However, the Tribunal reviewed the details provided by the assessee and concluded that the assessing officer had made necessary inquiries into these expenses. The Tribunal noted that similar charges had been allowed in previous years, indicating consistency in treatment. Therefore, the Tribunal found no reason to doubt the nexus of these expenses with the business of the assessee.

3. The CIT issued a notice under Section 263 of the Act, contending that the assessing officer had failed to examine certain points, rendering the assessment erroneous and prejudicial to the revenue's interest. The Tribunal, after thorough examination, found that the assessing officer had indeed inquired into the relevant matters. The Tribunal considered the submissions and materials presented by the assessee, demonstrating that similar expenditures had been allowed in previous assessment years. The Tribunal concluded that the assessing officer's actions were satisfactory, and the order could not be deemed erroneous or prejudicial to the revenue's interest. The High Court concurred with the Tribunal's findings, dismissing the appeal and answering the substantial questions of law against the revenue.