2023 (3) TMI 614 - AT - Income Tax

Revision u/s 263 by CIT - excessive interest has been claimed on the closing balances of capital of partners which includes this claim on account of inadvertent mistake of share of loss in the aforesaid JV - HELD THAT - We take note of the fact that assessee while arriving at the balances of capital of the partners in the assessee firm, incorrectly took the share of loss in the aforesaid JVs as share of profit. It is quite understandable that interest on the partners capital balance must have been calculated on the figure including this wrong treatment. The apprehension of Ld. Pr. CIT that excessive interest has been claimed on the closing balances of capital of partners which includes this claim on account of inadvertent mistake of share of loss in the aforesaid JV. However, the facts do not corroborate the apprehension of the Ld. Pr. CIT. This makes us understand that there is no prejudice to the interest of revenue owing to the inadvertent mistake. CIT has not applied his mind to arrive at a consideration which is erroneous in so far as prejudicial to the interest of the revenue, for passing the impugned order u/s 263 of the Act. We observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, assessee had furnished the relevant details and explained the issues raised through the show cause notice issued by the Ld. PCIT, supporting its contentions by corroborative documentary evidences. We find that the issue in the present case is purely on facts verifiable from the records of the assessee which revealed that the issue raised by the Ld. Pr. CIT for invoking revisionary proceedings are ill founded. We also note that observation made by the Ld. Pr. CIT for the potential under statement of income owing to this inadvertent mistake of treating the share in loss as share in profit of one JV in the subsequent assessment year i.e. 2017-18 does not justify the present proceeding of revision undertaken by the Ld. Pr. CIT u/s. 263 - The mistake committed by the assessee is rectifiable in its books of accounts and has to be dealt in the respective assessment year. Accordingly, on the issue raised by the Ld. Pr. CIT in the present revisionary proceeding action u/s 263 of the Act is not justifiable, we therefore, quash the impugned order u/s. 263 - Appeal of assessee allowed.

Summary

Issues:
The judgment involves the issue of jurisdiction under section 263 of the Income-tax Act, 1961 regarding the revision order passed against the assessment order by the Income Tax Officer.

Comprehensive Details:

Issue 1: Condonation of Delay
The appeal was delayed by 506 days due to the pandemic, and the delay was condoned based on the exclusion of pandemic period for limitation purposes by the Supreme Court. The Tribunal admitted the appeal for hearing after condoning the delay.

Issue 2: Jurisdiction under Section 263
The assessee, a partnership firm, was engaged in various businesses. The revision order under section 263 was passed by the Principal CIT based on the incorrect treatment of a Joint Venture's loss as profit, resulting in an alleged overstatement of partners' capital. The CIT observed potential understatement of income for the subsequent assessment year.

Issue 3: Assessee's Contentions
The assessee contended that there was no prejudice to the revenue as interest was not charged on the incorrect figure, and the alleged understatement of income for the subsequent year did not affect the current assessment. The Counsel argued against the CIT's observations and objected to the potential understatement of income.

Issue 4: Tribunal's Analysis
The Tribunal found that the treatment of the Joint Venture's loss as profit was an inadvertent mistake by the assessee. It concluded that there was no excessive interest claimed on partners' capital, and the CIT's apprehension of prejudice to revenue was unfounded. The Tribunal referred to legal precedents, including the Malabar Industries case, to determine the correctness of the CIT's actions under section 263.

Issue 5: Tribunal's Decision
After analyzing the facts and legal principles, the Tribunal held that the revisionary proceedings initiated by the CIT were unjustified. The mistake in treating the Joint Venture's loss as profit was rectifiable in the books of accounts and should be addressed in the respective assessment year. Consequently, the Tribunal quashed the order under section 263, allowing the appeal of the assessee.

The Tribunal's decision was based on the lack of error prejudicial to the revenue in the original assessment order, leading to the quashing of the revision order under section 263 of the Income-tax Act.