2022 (3) TMI 69 - AT - Income Tax

Revision u/s 263 - assessee has debited a sum in the profit loss account towards donation paid by it under the head other expenses' - HELD THAT - Principal CIT should have given open hand to the A.O. to decide on the claim made by the assessee, instead of directing him to disallow the claim. Since the AO did not examine this issue during the course of assessment proceedings, in our view, the Ld. PCIT was justified in initiating revision proceedings and passing the impugned revision order - we are of the view that the final decision of Ld. PCIT requires modification. Accordingly, we modify the order passed by Ld. PCIT and direct the A.O. to examine the claim of donation made to FIMI in accordance with law after duly considering the explanation and information furnished by the assessee in support of the claim. We also make it clear that the A.O. should not be influenced by the observations made by the Principal CIT or direction given in the revision order.

Summary

Issues:
Validity of revision order passed by Ld. Principal CIT-6 under section 263 of the Income-tax Act, 1961 for assessment year 2013-14 regarding the deduction of a donation amount in the profit & loss account.

Analysis:
The assessee, engaged in mining of iron ore, challenged the revision order passed by the Ld. Principal CIT-6, Bengaluru under section 263 of the Income-tax Act, 1961 for assessment year 2013-14. The Ld. Principal CIT observed that the assessee debited a sum towards donation paid under "other expenses" but did not add it back in the income computation, leading to the initiation of revision proceedings. The assessee argued that the payment to a trade association was for business interests and should be deductible as a business expenditure. However, the Ld. Principal CIT held that the donation payment is not allowable as deduction under section 37(1) of the Act and directed the AO to disallow the donation amount.

The Ld. A.R. contended that the payment to the trade association was for protecting business interests and should be deductible, while the Ld. D.R. argued that lack of enquiry by the AO rendered the assessment order erroneous. The Ld. Principal CIT directed the AO to disallow the claim without giving an opportunity to examine it. The ITAT held that while the revision proceedings were justified due to the AO's failure to examine the issue, the Ld. Principal CIT should have allowed the AO to decide on the claim. The ITAT modified the order, directing the AO to reexamine the donation claim in accordance with law, without being influenced by the revision order.

In conclusion, the ITAT partly allowed the appeal, emphasizing the need for a thorough examination of the donation claim by the AO, independent of the directions in the revision order.