2023 (9) TMI 550 - HC - Income Tax

Revision u/s 263 - A.O. has erred in granting deduction of expenditures claimed u/s. 57(iii) - HELD THAT - Contention of the authority is that the AO s order was erroneous and prejudicial to the interest of Revenue was wrong. As observed that the assessment of the assessee was taken under Limited scrutiny under CASS for verifying the following CASS reasons Large Deduction Claimed u/s. 57, Higher Turnover Reported in Service Tax Return as Compared to ITR . Notice was issued under section 143(2) of the Act in which a specific query was put forth regarding the claim of Section 57 of the Act. Even otherwise the Tribunal observed that in the immediate preceding year, similar claim of interest deduction was allowed to the assessee under Section 36(1)(iii) of the Act. In light of this, the Tribunal reversed the order of the CIT under Section 263 of the Act. No substantial question of law arises for consideration.

Summary

Issues involved:
The judgment involves the following substantial questions of law:
1. Whether the Tribunal was justified in quashing the order under Section 263 of the Income Tax Act when the Explanation 2 of Section 263 provides for the final opinion of the Principal Commissioner of Income Tax (PCIT) to deem an order prejudicial and erroneous to the interest of revenue?
2. Whether the Tribunal was justified in quashing the order under Section 263 of the Income Tax Act when the Assessing Officer (AO) erred in granting deduction of expenditures claimed under Section 57(iii) of the Income Tax Act?
3. Whether the Tribunal was justified in quashing the order under Section 263 of the Income Tax Act when the Assessment Order passed by the AO is unsustainable in law?
4. Whether the Tribunal was justified in allowing the appeal of the assessee against the order under Section 263 of the Income Tax Act when there was gross inadequacy in the inquiry conducted as per the order of the Supreme Court in the case of Commissioner of Income Tax vs. M/s. Paville Projects Pvt. Ltd.?

Summary:
The case involved an appeal challenging the order passed by the Income Tax Appellate Tribunal for the assessment year 2017-18. The Revenue contended that the deduction claimed by the assessee should be limited to the income earned, and the balance amount of expenditure should have been disallowed as it is allowable only if made wholly and exclusively to earn such income. The Commissioner of Income Tax (CIT) invoked Section 263 of the Income Tax Act and disallowed the claim. However, the Tribunal, upon examination of facts, found that the claim was examined, and the AO's order was not erroneous. The Tribunal noted that the assessment was taken under limited scrutiny, and a specific query was raised regarding the claim. Additionally, in the preceding year, a similar claim of interest deduction was allowed to the assessee under a different section of the Act. Therefore, the Tribunal reversed the order of the CIT under Section 263. The High Court found no substantial question of law and dismissed the appeal, stating that there was no reason to interfere with the Tribunal's decision.