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TMI Blog2022 (11) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... ee no merit in the appeal of the Revenue. - I.T.A. No.9240/DEL/2019 - - - Dated:- 14-7-2022 - Shri Challa Nagendra Prasad, Judicial Member And Shri Pradip Kumar Kedia, Accountant Member For the Appellant : Shri Amaresh Singh, CIT-D.R. For the Respondent : Shri Salil Kapoor, Adv., Shri Sumit Lalchandani, Adv ORDER PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-III, Gurgaon ( CIT(A) in short) dated 29.01.2018 arising from the assessment order dated 29.12.2017 passed by the Assessing Officer (AO) under Section 263 r.w. Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15. 2. The grounds of appeal raised by the assessee reads as under: Whether on the facts and in the circumstances of the case, the Ld.CIT(A) has erred in interpreting the scope of section 263 of the Income Tax Act? 2. Whether on the facts and in the circumstances and in law the Ld.CIT(A) has erred and failed to appreciate the fact that the assessment was set aside by the Pr. CIT(C), Gurgaon and directed the Assessing Officer to complete the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with the order of the CIT(A) is called for in the facts and circumstances of the case. 5. We have carefully considered the rival submission. The short preliminary issue which requires to be examined is whether the Assessing Officer is empowered to expand the scope of consequential proceedings under Section 143(3) r.w. Section 263 by making assessment in respect of issues which are not subject matter of revisional order under Section 263. 6. The CIT(A) has favourably dealt with the contentions of Assessee as under: 3.3 Ground No. 2(c) relates to AO having expanded the scope of proceedings u/s 143(3) r.w.s 263 by making assessment of all aspects of returned income. 3.3.1 With respect to this ground, the appellant has submitted as follows:- The assessee is in appeal before your Honour against the order passed by the Assistant Commissioner of Income Tax, Central Circle Gurgaon u/s 143(3) r.w.s. 263 of the Income Tax Act 1961. The only addition made by Ld. AO pertains to the addition on account of interest cost incurred by the assessee on External Development Charges (EDC) and internal Development charges (IDC') payable to Haryana Urban Development Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act observed as under: Therefore, whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under Section 37(1) of the Income-tax Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) of the Income-tax Act, wherever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obliged to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature. 5) In Standard Batteries Ltd. v. Commissioner of Income-Tax 211 ITR 444, the Supreme Court followed and reiterated the view taken in Prakash Cotton Mills P. Ltd.'s case (supra). In Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of Interest paid on EDC/IDC, nor any direction was given to the assessing officer with reference to the interest paid on External/Internal Development charges paid by the assessee. No reference of examination or in any other manner was raised or even discussed by the Ld Commissioner of Income Tax at any stage of the Revisionary proceedings. It is a trite law that before the CIT can pass any order, he has to give the assessee an opportunity of being heard and thereafter record, at least prima facie, that the original order of the Assessing Officer is erroneous or prejudicial to the interests of the Revenue. The requirement of giving the assessee an opportunity of hearing is for the simple reason that the assessee may be able to refute the belief of the CIT which might be formed on an examination of the record of the proceedings under the Act, that is to say, the assessee may be in a position to point out that the assessment order is just and fair. Therefore, the moment the Assessing Officer is entitled to examine items which did not form part of Section 263 proceedings, the statutory requirement of framing an order under section 263 of the Act after giving the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment charges/internal development charges did not form part of the show cause notice issued by the CIT as well as the proceedings before him. In view of the same and the above judicial pronouncements it is amply clear that the said addition could not have been made by the Assessing officer. In view of the same it is prayed that the addition made may kindly be dropped in the interest of justices. 3.3.2 I have verified the contentions of appellant and it is seen that the additions made by the AO on account of interest charges on EDC (Rs. 11,22,56,000/-) and penal interest on IDC (Rs. 29,86,000) were not covered in the issues specified in the order of Pr.CIT u/s 263 of the Act whereby AO was directed to make enquiries on other issues and thereafter re-decide the issue. It has been held by the Hon'ble Courts as discussed in the appellant's submissions that the jurisdiction of the Assessing Officer to pass fresh order in consequence to order u/s 263 is confined to the examination of issues as ordered by Pr.CIT in the order, Hence, the AO while passing fresh order in pursuance to an order of CIT u/s 263 is entitled to consider only such items which have been consider ..... X X X X Extracts X X X X X X X X Extracts X X X X
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