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2022 (3) TMI 1241 - AT - Income TaxRevision u/s 263 by CIT - claim of additional depreciation u/s 32(1)(iia) and investment allowance u/s. 32(AC) of the Act of machineries which were not new but transferred from earlier plant of the assessee at Uttarakhand to present plant at Gokak Karnataka - HELD THAT - Assessee had sufficiently demonstrated to the Ld.PCIT that both his claim of additional depreciation and investment allowance on new assets as also claim of expenses relating to legal professional and advertisement were in accordance with law. The assessee we have noted had demonstrated to the Ld.PCIT that no benefit of additional depreciation and investment allowance had been claimed on the old assets transferred from Uttarakhand to Karnataka which as per the Ld.PCIT the assessee had been erroneously allowed since the AO had not examined the claim. The entire list of new assets purchased during the year and on which addl. Depreciation and investment allowance was claimed as reflected in the tax audit report and in conformity with the financial statements of the assessee was filed to the Ld.PCIT and the bills of old assets transferred also submitted to him pointing out that the said bills were not included in the list of new assets on which addl. depreciation and investment allowance had been claimed by the assessee. Similarly the assessee had filed all details of TDS deducted on legal professional and advertisement expenses correlating it with their ledger accounts in the books of the assessee and further supplementing the claim with TDS returns filed. Thus the assessee had demonstrated that the claim of the assessee to these expenses was in accordance with law none being disallowable on account of non deduction of tax at source as apprehended by the Ld.PCIT. We have also noted that the assessee had been subjected to tax audit u/s 44AB of the Act and the tax auditors had not reported any such incorrect /disallowable claims of the assessee. Nothing adverse has been pointed out by the Ld.PCIT with regards to the either of the above claims. The Ld.PCIT we find has not even cared to consider the contention of the assessee and simply held that these issues not having been examined by the AO has resulted in the assessment order being erroneous so as to cause prejudice to the Revenue. We are not in agreement with the same. The assessee having demonstrated his claim being in accordance with law and nothing adverse being pointed out by the Ld.PCIT in the explanation of the assessee there arises no question of the assessment order being erroneous at all. No inquiry may have been conducted by the AO in the present case but if the assessee demonstrates to the Ld.PCIT that his claim was in accordance with law, as in the present case and no infirmity is pointed out by him in the explanation of the assessee how can the assessment order be erroneous. The fact of mere non inquiry in itself, in such circumstances will not be sufficient to hold the assessment order erroneous so as to cause prejudice to the Revenue. ITAT Mumbai Bench has considered Explanation 2 to section 263 in the case of Narayan Tatu Rane 2016 (5) TMI 1162 - ITAT MUMBAI ITAT holding that it cannot be said to have overridden the law interpreted by courts that before holding any order to be erroneous the PCIT should have conducted inquiries to show that the finding of the AO was erroneous. That the provision would apply only if an order has been passed without making inquiries which a prudent officer should have carried out - Appeal of assessee allowed.
Issues Involved:
1. Jurisdiction of PCIT under Section 263 of the Income Tax Act. 2. Claim of additional depreciation and investment allowance on transferred machinery. 3. Disallowance of advertisement expenses and legal and professional fees due to non-deduction of TDS under Section 40(a)(ia). Detailed Analysis: Jurisdiction of PCIT under Section 263: The first issue raised by the assessee was the jurisdiction of the PCIT, Ahmedabad, to pass an order under Section 263 of the Income Tax Act. The assessee argued that its jurisdiction lay with ACIT, Circle-13(3)(2), Mumbai, as evidenced by a communication dated 09.10.2019 from the office of the PCIT -3, Ahmedabad, proposing the transfer of the PAN and jurisdiction to Mumbai. The tribunal noted that the communication only proposed the transfer and required the assessee to submit views on the proposed transfer. The assessee could not substantiate that the jurisdiction had been officially transferred to Mumbai, nor could it provide evidence of any response to the communication or an order under Section 127 of the Act transferring the jurisdiction. Consequently, the tribunal held that the PCIT, Ahmedabad, had the jurisdiction to pass the order under Section 263, and the assessee's contention was rejected. Claim of Additional Depreciation and Investment Allowance: The second issue pertained to the claim of additional depreciation under Section 32(1)(iia) and investment allowance under Section 32AC on machinery transferred from the assessee's plant in Uttarakhand to its plant in Karnataka. The PCIT found that the assessment order was erroneous as the AO did not make necessary inquiries or verifications regarding the claim. The assessee contended that it had demonstrated to the PCIT that no additional depreciation or investment allowance was claimed on the transferred machinery, and provided a detailed list of new machinery amounting to ?2,47,88,19,354/- on which the claims were made. The tribunal found that the assessee had sufficiently demonstrated that the claims were made on new assets and not on the transferred machinery. The PCIT did not conduct further inquiries or verify the assessee's claims, and merely held that the AO's order was erroneous without pointing out any specific errors. The tribunal held that the assessment order was not erroneous as the assessee's claims were in accordance with the law, and the mere non-inquiry by the AO did not make the order erroneous. Disallowance of Advertisement Expenses and Legal and Professional Fees: The third issue involved the disallowance of advertisement expenses and legal and professional fees due to non-deduction of TDS under Section 40(a)(ia). The PCIT noted that the assessee had not deducted TDS on advertisement expenses of ?66.55 lakh and legal and professional fees of ?778.49 lakh. The assessee contended that it had provided detailed submissions to the PCIT, including ledger accounts, details of TDS deducted, reasons for non-deduction, and copies of TDS returns. The tribunal found that the assessee had sufficiently demonstrated that TDS was deducted and deposited wherever applicable, and the claims were in accordance with the law. The PCIT did not point out any specific errors in the assessee's submissions and merely held that the AO's order was erroneous without conducting further inquiries. The tribunal held that the assessment order was not erroneous as the claims were in accordance with the law. Conclusion: The tribunal concluded that the PCIT did not provide any specific findings of errors in the AO's order and merely held it to be erroneous due to non-inquiry. The assessee had sufficiently demonstrated that its claims were in accordance with the law, and the PCIT did not conduct further inquiries or verify the submissions. The tribunal set aside the revisionary order passed by the PCIT and allowed the appeal of the assessee.
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