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TMI Blog2019 (5) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment and exercise of jurisdiction u/s 263 of the Act which is not justified as far as this sum is concerned. Other items of expenditure for which jurisdiction u/s 263 of the Act is invoked, we do not find any material which can justify the action of the AO in allowing these items of expenditure as deduction.Therefore, the CIT was justified in directing the AO to examine the allowability of these items of expenditure. The assessee is always at liberty to show as to how items of expenditure made in cash were not hit by the provision of sec. 40A(3) of the Act and as to how the personal expenses of salary wages and bonus is not in the nature of provision. The assessee is also at liberty to show as how the prior period expenses is in fact liability which crystallized only during the relevant previous year. In the given circumstances of the case, we are of the view that the order u/s 263 of the Act in so far as aforesaid 3 items of expenditure are concerned is valid and deserves to be sustained. AO was directed to do denovo assessment, the same can be only be in respect of item set out in the order u/s 263 of the Act. We accordingly modify the order u/s 263 of the Act by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv The assessee debited an amount of ₹ 1,63,86,153/- as Prior Period adjustments. The assessee company was following mercantile system of accounting. The A.O failed to verify the allowability of prior period adjustments debited in the previous year resulting in short assessment. 4. In response to the aforesaid show cause notice, the assessee submitted as follows:- i) The company has paid a sum of ₹ 10.00 crores to Bellary DC towards Corporate Social Responsibility for formation of Ring Road around Be1lary. The road is used for transportation of ores from their mines. This is a business expenditure being in nature of expenditure laid out or expended wholly and exclusively for the purposes of the business. ii) With regard to cash payment to the tune of ₹ 79,33,710/-, the assessee stated that the cash payments are made at various mines located village area where no banking facility is available and most of items related to payment of statutory dues like royalty, vehicle tax and other government levies. iii) Personnel expenses - Salaries, wages and bonus debited to Profit and Loss Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as business expenditure. 2) Cash payment made in violation of sec. 40A(3) of the Act which were claimed by the assesee to be statutory dues and hence outside the purview of sec. 40A(3) of the Act were not proved to be payments made towards statutory liabilities and paid in areas where there were no banking facilities. The CIT, therefore held that an examination is required to be made by the AO in this regard. 3) As far as the provision debited to profit and loss account is concerned, the CIT(A) was of the view that provision made in the books of account cannot be construed as actual of liability under mercantile system of accounting and therefore, the provisions debited in the profit and loss account on account of personal expenses like salary wages and bonus is not an allowable expenditure. 4) In the prior period adjustment, the CIT held that since the assesee was following mercantile system of accounting only expenses which have accrued or arisen to the assesee during the relevant previous year should be allowed as deduction. He also held with reference to sales tax and bonus liability there was an exception, otherwise all other exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Ltd. 332 ITR 167, wherein Hon ble Delhi High Court held that there is a difference between lack of enquiry and no enquiry the Hon ble Court held that jurisdiction u/s 263 of the Act can be invoked only in the case of no enquiry made by the AO and not in case where the enquiries were made by the AO but the CIT construes them to be in adequate. The ld counsel for the assessee also placed reliance on the decision of Hon ble Karnataka High Court in the case of CIT Vs. Saravana Developers in ITA 68/2014 judgment dated 21/1/2016 wherein the Hon ble Court held that the Explanation to sec. 263 of the Act which was introduced by the Finance Act of 2015 w.e.f 1/6/2015 was prospective and cannot be applied to an earlier assessment year prior to the aforesaid amendment coming into force. Explanation - 2 so introduced sets out instances where order of the AO can be considered as prejudicial to the interest of the Revenue and erroneous. The Explanation says a case of the lack of enquiry also is an instance of the order of the AO being regarded as erroneous and prejudicial to the Revenue. The ld counsel for the assessee submitted that this amendment cannot apply to the case of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepting the claim of the assessee and the learned counsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied. 28. We are of the clear opinion that there cannot be any dichotomy of this nature, as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with relevant articles of a double taxation avoidance agreements and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the revenue and therefore while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esses s plea is that the development of roads would help transportation of iron ore from mine by the assesse. Keeping in mind the decision of the Hon ble Supreme Court in the case of Lakshmiji Sugar Mills Co. Pvt. Ltd., (Supra), we are of the view that this expenditure was rightly allowed by the AO while concluding the assessment and exercise of jurisdiction u/s 263 of the Act which is not justified as far as this sum is concerned. 15. With regard to the other items of expenditure for which jurisdiction u/s 263 of the Act is invoked, we do not find any material which can justify the action of the AO in allowing these items of expenditure as deduction. Therefore, the CIT was justified in directing the AO to examine the allowability of these items of expenditure. The assessee is always at liberty to show as to how items of expenditure made in cash were not hit by the provision of sec. 40A(3) of the Act and as to how the personal expenses of salary wages and bonus amounting to ₹ 2,38,88,552/- is not in the nature of provision. The assesee is also at liberty to show as how the prior period expenses of ₹ 1,63,86,153/- is in fact l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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