2016 (2) TMI 1071 - AT - Income Tax

Tribunal affirms Commissioner's jurisdiction to revise assessment order due to errors in CSR expenditure

MOIL Limited, (Earlier known as Manganese Ore India Limited.), Nagpur Versus Commissioner of Income-Tax-I, Nagpur

The Tribunal upheld the Commissioner's jurisdiction under Section 263 to revise the assessment order due to errors in allowing Corporate Social ... Revision u/s 263 - ‘Change in opinion’ - Held that:- As far as the question of invocation of jurisdiction through a notice u/s 263 is concerned, we have perused the said notice, photo copies placed before us and in our considered opinion the learned Commissioner was very much clear in his mind about the genuineness of the claim of expenditure, therefore, he had issued the said notice providing an opportunity to the assessee to explain the legality of the claim. Moreover, the assessee has also answered this query vide a reply without raising any doubt at that point of time. Hence we hereby hold that the objection is not sustainable in the eyes of law. As examined the findings of Commissioner according to which he has directed the AO to make necessary enquiries as regards the allowability of the said expenditure that too after providing opportunity to the assessee. This is not the case where the directions were to disallow the expenditure in question but the directions were simply to verify the admissibility of the claim. In such situation when the learned Commissioner has not directed to disallow the claim, or in other words, the directions were not conclusive in nature, we hereby hold at this stage that no prejudice has been caused to the assessee. The assessee has ample opportunity to explain his case. We, therefore, conclude that there is no fallacy in the directions of the learned Commissioner to the AO to pass a fresh assessment after making necessary enquiries in respect of the expenditure claimed under the head “Corporate Social Responsibility.” The order of the learned Commissioner passed u/s 263 dated 27-03-2014 is hereby confirmed. - Decided against assessee. Issues Involved:1. Jurisdiction of the Commissioner under Section 263 of the I.T. Act.2. Condonation of delay in filing the appeal.3. Allowability of Corporate Social Responsibility (CSR) expenditure under Section 37 of the I.T. Act.4. Application of mind by the Assessing Officer (AO) in passing the assessment order under Section 143(3).Detailed Analysis:1. Jurisdiction of the Commissioner under Section 263 of the I.T. Act:The primary issue revolves around the jurisdiction of the learned Commissioner of Income Tax to revise the order passed by the AO under Section 143(3). The Commissioner observed that the AO's order allowing the deduction of Rs. 542.11 lakhs towards CSR expenditure was erroneous and prejudicial to the interest of the Revenue. The Commissioner noted that the AO had not made any enquiry regarding the nature of the expenditure, thereby rendering the assessment order erroneous. The Tribunal upheld the Commissioner's jurisdiction under Section 263, stating that the provision enables the Commissioner to revise orders that are erroneous and prejudicial to the Revenue. The Tribunal emphasized that the Commissioner's directions were to verify the admissibility of the CSR expenditure claim, not to disallow it outright, thus no prejudice was caused to the assessee.2. Condonation of delay in filing the appeal:The appeal was filed belatedly by the assessee, and an application for condonation of delay was submitted, citing the Finance Manager's illness as the reason for the delay. The Tribunal considered the affidavit and case laws cited and deemed it proper to condone the delay, admitting the appeal to be decided on merits.3. Allowability of Corporate Social Responsibility (CSR) expenditure under Section 37 of the I.T. Act:The assessee contended that the CSR expenditure was mandatory as per Government guidelines and should be allowable under Section 37 of the I.T. Act. The assessee referenced several case laws, including the decision of the Hon'ble Supreme Court in Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT, to support the claim that such expenditure should be allowable. However, the Commissioner was not convinced, noting that the AO had allowed the deduction without proper enquiry or application of mind. The Tribunal agreed with the Commissioner, stating that the AO should have specifically examined the nature of the CSR expenditure to determine its allowability under Section 37.4. Application of mind by the Assessing Officer (AO) in passing the assessment order under Section 143(3):The Tribunal scrutinized whether the AO had applied his mind while allowing the CSR expenditure deduction. The assessee argued that the AO had duly examined the accounts and made certain disallowances, indicating that the assessment was not completed in a summary manner. However, the Tribunal found that the AO had not raised specific queries or conducted a detailed examination of the CSR expenditure's nature. The Tribunal concluded that the AO's failure to make necessary enquiries rendered the assessment order erroneous and prejudicial to the Revenue. The Tribunal upheld the Commissioner's direction to the AO to redo the assessment after making necessary enquiries regarding the CSR expenditure's allowability.Conclusion:The Tribunal confirmed the Commissioner's order passed under Section 263, directing the AO to reassess the allowability of the CSR expenditure after conducting necessary enquiries. The assessee's appeal was dismissed, and the order was pronounced in the open Court on February 25, 2016.