2017 (2) TMI 1440 - AT - Income Tax

Tribunal Upholds Tax Commissioner's Jurisdiction, Orders Assessment Review

M/s. Southern Petrochemical Industries Corpn. Ltd. Versus The Deputy Commissioner of Income-tax, Company Circle-V (1), Chennai-34.

M/s. Southern Petrochemical Industries Corpn. Ltd. Versus The Deputy Commissioner of Income-tax, Company Circle-V (1), Chennai-34. - TMI Issues Involved:1. Jurisdiction under Section 263 of the I.T. Act.2. Proportionate interest disallowance.3. Disallowance of Electricity and Power Generation Tax under Section 43B.4. Deduction under Section 35(2AB).5. Relief obtained under Corporate Debt Restructuring (CDR) Mechanism.Detailed Analysis:1. Jurisdiction under Section 263 of the I.T. Act:The Commissioner of Income Tax (CIT) assumed jurisdiction under Section 263, contending that the assessment order was erroneous and prejudicial to the interest of the revenue. The CIT highlighted discrepancies including the incorrect computation of interest disallowance, improper allowance of Electricity and Power Generation Tax, unverified deduction under Section 35(2AB), and unexamined relief under the Corporate Debt Restructuring (CDR) Mechanism. The assessee argued that the CIT's assumption of jurisdiction was erroneous as the Assessing Officer (AO) had adopted a permissible view. The Tribunal upheld the CIT's jurisdiction, emphasizing that the AO's order was indeed erroneous and prejudicial to the revenue.2. Proportionate Interest Disallowance:The CIT noted that the AO had erroneously computed the interest disallowance by considering the net interest liability instead of the gross interest paid. The CIT directed the AO to rework the disallowance based on the gross interest paid. The assessee contended that the AO's method was scientific and relied on the Supreme Court's decision in S.A. Builders v. CIT. However, the Tribunal upheld the CIT's direction, stating that the gross interest liability should be considered for proportionate disallowance as per the provisions of the Act.3. Disallowance of Electricity and Power Generation Tax under Section 43B:The CIT observed that the assessee had claimed deductions for Electricity and Power Generation Tax which were not paid within the stipulated time under Section 43B. The assessee argued that the liability was under dispute and stayed by the Madras High Court. The Tribunal upheld the CIT's direction, stating that the statutory liability must be paid before the due date for filing the return to be eligible for deduction under Section 43B.4. Deduction under Section 35(2AB):The CIT found that the AO had allowed the deduction under Section 35(2AB) without verifying the necessary evidence, such as the agreement with the Department of Scientific and Industrial Research and the expenditure incurred on in-house research and development. The CIT directed the AO to re-examine the claim. The Tribunal agreed with the CIT, emphasizing that the AO's failure to verify the claim rendered the assessment order erroneous and prejudicial to the revenue.5. Relief obtained under Corporate Debt Restructuring (CDR) Mechanism:The CIT noted that the AO had not examined the relief obtained under the CDR Mechanism, which resulted in a reduction of interest liability. The CIT directed the AO to assess the relief under the appropriate provisions of the Act. The assessee argued that the CDR exercise had not reached finality due to pending confirmations from two banks. The Tribunal upheld the CIT's direction, stating that the reduction in interest liability should be considered as income of the current year as per the provisions of the Act.Conclusion:The Tribunal dismissed the assessee's appeals for the assessment years 2005-06 and 2006-07, upholding the CIT's directions under Section 263 to rework the assessment considering the discrepancies noted. The Tribunal confirmed that the AO's order was erroneous and prejudicial to the interest of the revenue, justifying the CIT's intervention.