2024 (11) TMI 862 - AT - Income Tax

Revision u/s 263 - assessment framed u/s 143(3) as erroneous in so far prejudicial to the interest of Revenue - HELD THAT - It is settled law that for initiating the proceedings u/s 263 it is compulsory to reach to the conclusion that the assessment framed by the AO is not only erroneous but also prejudicial to the interest of Revenue. On a perusal of the order of the learned PCIT, we note that the learned PCIT has observed that the expenses in dispute have already been capitalized by the assessee in the books of account. Since this fact has already been observed by the learned PCIT in his order, there remains no ambiguity that the assessee has not claimed the benefit of deduction of the impugned expenses in its P L Account. Thus, we hold that once no deduction has been claimed by the assessee of the impugned expenses in the P L Account, then we are of the view that even the order is held as erroneous for any reason, the same cannot be held as prejudicial to the interest of Revenue. Accordingly, we are of the considered view that the twins conditions being erroneous in so far prejudicial to the interest of Revenue have not been satisfied which was mandatory for invoking the provisions of section 263. Accordingly, we hold that the order framed by the learned PCIT u/s 263 is not sustainable and hence we quash the same. Assessee appeal allowed.

Summary

Issues:
1. Delay in filing the appeal by the assessee.
2. Whether the assessment framed by the AO was erroneous and prejudicial to the interest of Revenue.

Analysis:

Issue 1: Delay in filing the appeal by the assessee
The appeal was filed by the assessee against the order of the ld. Principal Commissioner of Income Tax for Assessment Year 2017-18. The assessee had filed a condonation petition supported by an affidavit citing a delay of 434 days in filing the appeal. The delay was attributed to the Chartered Accountant who misplaced the necessary documents. The learned A.R. contended that the delay was not the fault of the assessee. The Tribunal, after hearing both parties, held that the delay was attributable to the Auditor, as supported by the Auditor's affidavit. Consequently, the delay was condoned, and the Tribunal proceeded to adjudicate on the merit of the appeal.

Issue 2: Whether the assessment framed by the AO was erroneous and prejudicial to the interest of Revenue
The learned PCIT found that the assessee had claimed deduction of capital expenditure without proper verification by the AO during the assessment proceedings. The PCIT held that the assessment was erroneous and prejudicial to the interest of Revenue. The assessee contended that the assessment was done after necessary verification and examination of facts. The assessee argued that since no deduction was claimed for the expenses in dispute, even if the assessment was deemed erroneous, it was not prejudicial to the interest of Revenue. The Tribunal noted that the expenses had been capitalized by the assessee in its books of account, and no deduction was claimed in the P&L Account. Therefore, the Tribunal held that the conditions of being erroneous and prejudicial to the interest of Revenue were not met, as required by section 263 of the Act. Consequently, the Tribunal quashed the order of the PCIT and allowed the appeal of the assessee.

In conclusion, the Tribunal allowed the appeal filed by the assessee, holding that the delay in filing the appeal was condoned due to reasons beyond the assessee's control. Additionally, the Tribunal found that the assessment framed by the AO was not erroneous and prejudicial to the interest of Revenue, as no deduction was claimed for the disputed expenses.