2024 (12) TMI 1215 - AT - Income Tax

Revision u/s 263 - AO having allowed claim of employers contribution to staff provident fund in excess of 27% of the salary, which was contrary to Rule 87 of the Income Tax Rules, 1962 - HELD THAT - We find that the assessee had explained no excess claim to have been made and had pointed out the demonstration of this fact to the AO with details during assessment proceedings. He had also explained how the excess had been erroneously calculated by the Ld. PCIT by considering contribution to funds which were not covered u/R87 of the Rules. PCIT however we find completely ignores these submissions and goes on to record a contrary finding, of the assessee having contributed to PF in excess of the limits specified under Rule 87 of the Rules. There is nothing in his order mentioning why and how he contradicts this factual contention of the assessee. Depreciation on addition of new plant and machineries while the same ought to have been limited to the amortized value of the assets - PCIT notes in his order that the assessee had contended that this depreciation had been claimed on new assets created by it and the circular no. CBDT Circular No. 9 of 2014 dated 23-01-20214 did not apply. Without dealing with the contentions of the assessee, the ld. PCIT holds the assessment order erroneous on this count simply by noting the impugned assets ought to have amortized and depreciation ought not to have been allowed to the assessee. Thus, the impugned order passed by the ld. PCIT is in gross violation of the principles of natural justice, passed without considering the contentions of the assessee before him and a completely non-speaking order. Assessee appeal allowed.

Summary

Issues Involved:

1. Invocation of Section 263 of the Income Tax Act, 1961.
2. Disallowance of depreciation under Section 32 of the Act.
3. Verification of the allowability of the appellant's contribution to the Provident Fund and other funds concerning Rule 87 of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act, 1961:

The primary issue in this appeal was whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the provisions of Section 263 of the Income Tax Act, 1961. The assessee contended that the PCIT erred in treating the assessment order as erroneous and prejudicial to the interest of the revenue. The assessee argued that the prerequisites for invoking Section 263 were not satisfied, as the assessment order was passed after due inquiry, and the Assessing Officer (AO) had adopted a plausible view. The Tribunal found that the order of the PCIT was cryptic and non-speaking, failing to consider the detailed contentions made by the assessee. The Tribunal concluded that the PCIT's order was unsustainable as it violated the principles of natural justice by not considering the assessee's submissions.

2. Disallowance of Depreciation under Section 32 of the Act:

The second issue pertained to the PCIT's direction to disallow depreciation of Rs. 35,69,12,010/- and limit it to the amortized value of Rs. 4,81,095/-. The assessee argued that the assessment order was not prejudicial to the revenue, as the nature of additions in the current year was different from previous years. The Tribunal noted that the AO had examined the issue of depreciation during the assessment proceedings and allowed it based on the assessee's submissions and supporting documents. The Tribunal found that the PCIT's order failed to address the assessee's explanation regarding the new assets created by it, which were distinct from assets acquired in previous years. The Tribunal held that the PCIT's order was erroneous as it did not consider the assessee's detailed submissions and evidence.

3. Verification of Allowability of Contribution to Provident Fund and Other Funds:

The third issue involved the PCIT's direction to verify the allowability of the appellant's contribution to the Provident Fund and other funds concerning Rule 87 of the Income Tax Rules, 1962. The assessee contended that the contribution was within the prescribed limit and that the AO had duly examined this issue during the assessment proceedings. The Tribunal observed that the assessee had provided detailed submissions and evidence to demonstrate compliance with the prescribed limits. The Tribunal found that the PCIT's order ignored the assessee's submissions and incorrectly calculated the excess contribution by including funds not covered under Rule 87. The Tribunal concluded that the PCIT's order was not sustainable as it failed to consider the factual contentions and evidence provided by the assessee.

Conclusion:

The Tribunal set aside the order of the PCIT, holding it to be in violation of the principles of natural justice and a non-speaking order. The Tribunal allowed the grounds raised by the assessee, thereby allowing the appeal. The decision emphasized the importance of considering detailed submissions and evidence before invoking revisionary powers under Section 263 of the Income Tax Act.