2022 (11) TMI 1033 - AT - Income Tax

Revision u/s 263 by CIT - computation of total income by considering loss declared by the assessee - HELD THAT - We are of the considered view that the assessment order passed by the AO neither erroneous nor prejudicial to the interest of the Revenue in so far as the first issue of computation of total income by considering loss declared by the assessee - Although, the AO has taken loss admitted as per original return of income filed by the assessee on 03.11.2017 in the assessment order, but in the computation sheet, the AO has adopted loss declared by the assessee in revised return of income filed on 30.03.2018, which is evident from the fact that the AO has considered current year loss in Column-11 of computation sheet as per revised return filed by the assessee. Therefore, assumption of jurisdiction by the ld. PCIT on this issue is fails. Disallowance of 'prior period expenses' - Although, the assessee has claimed deduction for 'prior period expenses' in the P L A/c, but did not made any disallowance in statement of total income, even though, said expenses is inadmissible under the law. The AO has failed to consider the disallowance of 'prior period expenses' while completing the assessment order u/s. 143(3) of the Act. Although, the Ld. Counsel for the assessee submitted that the AO has verified the issue by way of specific notice and the assessee has filed its reply, but on perusal of details filed by the assessee, we could not made out any evidence of the assessee having explained the issue of 'prior period expenses' before the AO. Therefore, assessment order passed by the AO on the issue of 'prior period expenses' is definitely erroneous and prejudicial to the interest of the Revenue and thus, we are of the considered view that the ld. PCIT has rightly assumed jurisdiction u/s. 263. Appeal filed by the assessee is partly allowed.

Summary

Issues Involved:
1. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act regarding revision of assessment order.
2. Consideration of loss declared in original return versus revised return.
3. Treatment of 'prior period expenses' in the assessment order.

Jurisdiction of PCIT under Section 263:
The appeal was filed against the PCIT's order pertaining to the assessment year 2017-18. The PCIT issued a show cause notice under Section 263, contending that the assessment order was erroneous and prejudicial to the Revenue's interest. The PCIT observed that the AO had not disallowed 'prior period expenses' claimed by the assessee, rendering the assessment order erroneous. The assessee argued that the AO had considered the relevant issues and the PCIT's assumption of jurisdiction was incorrect. The PCIT set aside the assessment order and directed a fresh assessment. The tribunal noted the legal requirement that for the PCIT to assume jurisdiction under Section 263, the order must be both erroneous and prejudicial to the Revenue. It found that the PCIT's jurisdiction was unfounded regarding the computation of loss, as the AO had correctly considered the loss as per the revised return. However, on the issue of 'prior period expenses,' the tribunal agreed that the AO's failure to disallow them made the assessment order erroneous and prejudicial to the Revenue's interest.

Consideration of Loss Declared:
The assessee initially declared a loss in the original return, which was revised later. The AO considered the loss from the revised return for tax computation but used the original return's loss in the assessment order. The PCIT found this treatment erroneous and prejudicial to the Revenue. The assessee argued that the AO's approach was correct as the tax liability was computed based on the revised return. The tribunal agreed with the assessee, stating that the AO's consideration of the revised return for tax computation was appropriate. Therefore, the PCIT's jurisdiction based on this issue was deemed invalid.

Treatment of 'Prior Period Expenses':
The PCIT raised concerns about the AO not disallowing the 'prior period expenses' claimed by the assessee. The PCIT found this to be an error prejudicial to the Revenue's interest. The assessee contended that all details were provided, and the AO had rightfully allowed the claim. However, the tribunal noted a lack of evidence that the issue was adequately explained to the AO. Consequently, the tribunal agreed with the PCIT that the treatment of 'prior period expenses' in the assessment order was erroneous and prejudicial to the Revenue. Therefore, the PCIT's jurisdiction on this issue was upheld, and the tribunal directed the AO to reframe the assessment only concerning the disallowance of 'prior period expenses.'

In conclusion, the tribunal partially allowed the appeal, affirming the PCIT's jurisdiction on the 'prior period expenses' issue while rejecting it on the loss computation matter. The tribunal directed the AO to reframe the assessment solely on the 'prior period expenses' in accordance with the law.