2023 (11) TMI 753 - AT - Income Tax

Revision u/s 263 by CIT - difference between the claim made by the assessee under the head General Expenses and disallowance made by the Ld. AO. - HELD THAT - Case selected for complete scrutiny and assessment is completed after issue of notice u/s 143(2) and 142(1) of the Act along with questionnaire and after duly examining the submissions of the assessee. If that be so, it is rather naive to assume that it is a case in which assessment order is passed without making enquiries or verification which should have been made. The import of the Ld. PCIT s order is that cent percent general expenses claimed by the assessee be disallowed as against 20% thereof as per the decision of the Ld. AO for the reason that complete details were not filed and that veracity thereof could not be verified. By no stretch of imagination, the decision of the Ld. AO to disallow 20% out of the claim of the assessee can be termed as erroneous . This is because the Ld. AO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion. Such a conclusion cannot be termed to be erroneous because the Ld. PCIT does not feel satisfied with the conclusion as held by the Hon ble Bombay High Court in CIT vs. Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT Erroneous order does not mean an order with which the Ld. PCIT is unable to agree as observed in Smt. Lila Chaudhary 2006 (3) TMI 112 - GAUHATI HIGH COURT . Prejudicial to the interest of Revenue would mean an erroneous order which goes against the interest of revenue collection. Both the conditions i.e. erroneous as also prejudicial to the interest of revenue must pre-exist to enable the Ld. PCIT to exercise the power under section 263. The revisional power under section 263 of the Act is a quasi-judicial power hedged in with limitations and has to be exercised subject to the same and within its scope and ambit. The impugned order of the Ld. PCIT is not sustainable both on facts and in law. It is hereby vacated. Decided in favour of assessee.

Summary

Issues involved:
The appeal challenges the order of the Ld. Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961 for Assessment Year 2017-18.

Grounds raised by the assessee:
The grounds raised include contentions regarding the legality and jurisdiction of the order passed by the Principal Commissioner of Income Tax, the examination of issues during assessment proceedings, and the exercise of revisionary power under Section 263 of the Act.

Assessee's business and assessment details:
The assessee, a company engaged in the business of petrol pump, filed its return for AY 2017-18 declaring income of Rs. 79,99,000. The assessment by the Assessing Officer included various additions and disallowances, leading to a total income of Rs. 1,09,77,800.

Principal Commissioner's findings and show cause notice:
The Principal Commissioner found discrepancies in the disallowance of general expenses and the addition of undeclared profit made by the Assessing Officer. The Principal Commissioner considered the assessment order erroneous and prejudicial to revenue, issuing a show cause notice for enhancing the assessment.

Assessee's response and revision by Principal Commissioner:
The assessee responded to the show cause notice, explaining the reasons behind the disallowed expenses and the addition of undeclared profit. Despite the explanations, the Principal Commissioner enhanced the assessment by a specific amount based on the disallowed expenses.

Arguments before the Tribunal:
The assessee contended that the Assessing Officer had properly examined the expenses and made disallowances after due application of mind. It was argued that the revisionary powers under Section 263 could not be invoked as the conditions of being erroneous and prejudicial to revenue were not cumulatively satisfied.

Tribunal's decision and reasoning:
The Tribunal analyzed the case records and concluded that the Assessing Officer had conducted a thorough assessment after due examination of submissions. The Tribunal held that the decision to disallow a portion of the expenses was not erroneous and did not go against the interest of revenue collection. Citing legal precedents, the Tribunal found the Principal Commissioner's order unsustainable both factually and legally, ultimately allowing the appeal of the assessee.

Conclusion:
The Tribunal vacated the order of the Principal Commissioner, ruling in favor of the assessee. The decision was pronounced in the open court on 17th November 2023.