2016 (11) TMI 1700 - AT - Income Tax

Income Tax Tribunal Reverses CIT's Order, Finds AO's Actions Justified

Kesoram Industries Ltd. Versus The Principal Commissioner of Income-Tax-2, Kolkata

The Tribunal found that the Principal Commissioner of Income Tax erred in treating the Assessing Officer's order as erroneous and prejudicial to the ... Revision u/s 263 by CIT - reason given in the show-cause notice as different for which revision powers are finally exercised - unexplained investment under section 69B - HELD THAT:- The issue raised by the ld. CIT in the notice issued u/s 263 of the Act was materially different with grounds on which the revision order was passed. It is thus clear that the ground taken in the show-cause notice that there was unexplained investment under section 69B - But upon taking into account the submission made by the assessee, the ld. CIT himself changed the stand. CIT instead of taking the decision on merits based on the show-cause notice has merely referred the matter to the Assessing Officer for verification of certain aspects. It is thus clear that there was a shift in the stand of the ld. CIT as to whether it was a case for revision on the ground of unexplained investment under section 69B of the Act or non-verification of certain aspects. The reason given in the show-cause notice is different for which revision powers are finally exercised in the impugned order. As in a situation in which the revision order is passed on the ground other than the grounds for which revision proceedings are initiated, the same cannot be sustainable in law. That apart, in the impugned order we have also noticed that the learned Commissioner has not faulted the explanation given by the assessee and has merely remitted the matter to the file of Assessing Officer for verification of factual elements embedded in explanation as given by the assessee. This approach is also not sustainable in law in view of the law laid down by the Hon'ble Bombay High Court in the case of CIT -vs.- Gabriel India Limited [1993 (4) TMI 55 - BOMBAY HIGH COURT] In the present case, proceedings were not initiated on the grounds that adequate enquiries were not carried out. The Commissioner has not alleged in the show cause notice that adequate enquiries were not carried out, and again, it is elementary that no person can be condemned unheard, and therefore, the assessee not having been heard on the question whether or not adequate enquiries were carried out, learned Commissioner could not have subjected the assessment order to revision proceedings on the ground that adequate enquiries were not carried out. Secondly, there is nothing on record to provoke an enquiry, which has not been carried out in the instant case. Learned Commissioner has not pointed out any reason as to why the Assessing Officer should have made further enquiry, which was apparently left out. In view of this discussion and entirety of the case, we uphold the grievance of the assessee and quash the impugned revision order. AO has conducted the enquiry about the addition of the fixed assets as appearing from the notice issued under section 142(1) Commissioner of income tax can exercise his jurisdiction u/s 263 of the Act only in cases where no enquiry is made by the Assessing Officer. In the instant case, it is admitted by the Income Tax Department that the Assessing Officer had made some enquiries though according to them it was not a proper enquiry. In view of the above facts that some enquiry was made is sufficient to debar the authorities from exercising the powers u/s 263 of the Act. The Tribunal was accordingly justified in setting aside the order passed u/s 263 of the Act. - Decided in favour of assessee. Disallowance u/s 14A r.w.r.8D - In the instant case the AO has taken the possible view for making the disallowance under section 14A of the Act. Thus in our considered view the AO has taken a possible view and therefore the order of the AO cannot be held erroneous & prejudicial to the interest of Revenue. Accordingly the ground raised by the assessee is allowed. Addition of trade discount on the ground that the assessee claim for trade discount was not in order - From the submission of the ld. AR we find that details of the trade discount were duly furnished to the AO at the time of assessment under section 143(3) of the Act. The details of such discount is placed - From the facts we find that the ld. CIT has changed its stand as initiated in the notice and at the time of passing the order under section 263 of the Act. In similar facts & circumstances we have already held in Para 8(a) of this order that the order of the AO is not erroneous and prejudicial to the interest of Revenue. Following the same we reverse the order of ld. CIT and the ground raised by the assessee is allowed. Excess depreciation claimed - We do not agree with the view of the ld. CIT as there is change in his stand with regard to the notice and in the revision order. In similar facts & circumstances we have already held in Para 8(a) of this order that the order of the AO is not erroneous and prejudicial to the interest of Revenue. Following the same we reverse the order of ld. CIT and the ground raised by the assessee is allowed. The assessee gets the relief, accordingly - Assessee appeal allowed. Issues Involved:1. Whether the Principal Commissioner of Income Tax (CIT) erred in treating the order of the Assessing Officer (AO) as erroneous and prejudicial to the interest of Revenue under Section 263 of the Income Tax Act.2. Discrepancy in the addition of fixed assets.3. Disallowance under Section 14A of the Income Tax Act.4. Claim of trade discount.5. Excess depreciation claimed due to foreign exchange gain.Issue-wise Detailed Analysis:1. Principal CIT's Treatment of AO's Order:The primary issue raised by the assessee is that the CIT erred in treating the AO's order as erroneous and prejudicial to the interest of Revenue. The CIT set aside the AO's assessment order and directed a re-assessment on certain issues. The assessee contended that the AO had conducted necessary inquiries and that the CIT's revision was not justified.2. Discrepancy in Addition of Fixed Assets:The CIT observed a discrepancy between the audited financial statement and the tax audit report regarding the addition of fixed assets, amounting to Rs. 1,10,26,959/-. The CIT considered this as an unexplained investment under Section 69B of the Act. The assessee provided a reconciliation statement explaining the difference due to foreign exchange fluctuation and non-depreciable assets like freehold land and livestock. The CIT, however, disregarded the explanation and held that the AO did not verify these aspects during the assessment.The Tribunal found that the CIT's notice under Section 263 was materially different from the grounds on which the revision order was passed. The CIT initially questioned the unexplained investment but later shifted to non-verification by the AO. The Tribunal held that such a shift in grounds is not sustainable in law, referencing the case of Vesuvius India Limited Vs CIT. Moreover, the Tribunal noted that the AO had conducted inquiries about the addition of fixed assets, as evidenced by the notice issued under Section 142(1) and the assessee's response.3. Disallowance under Section 14A:The CIT observed that the AO had netted off interest paid with interest income while calculating disallowance under Section 14A, resulting in a lower disallowance. The assessee argued that the AO had taken one of the possible views and had conducted a detailed inquiry. The Tribunal found that the AO had indeed applied his mind and made inquiries before taking the decision. The Tribunal also referenced similar cases where netting off interest was upheld, such as DCIT Vs. Trade Apartments Limited and CIT Vs. Deep Industries Limited. The Tribunal concluded that the AO's decision was a possible view and could not be held erroneous and prejudicial to the interest of Revenue.4. Claim of Trade Discount:The CIT questioned the trade discount claimed by the assessee, suggesting that it was claimed twice—once by reducing it from sales and again as a separate deduction. The assessee explained that the discount was provided upfront and was netted off from sales in the financial records. The Tribunal found that the CIT did not consider the assessee's explanation and changed the grounds from those mentioned in the show-cause notice. The Tribunal held that the AO had conducted inquiries and that the CIT's revision on this issue was not justified.5. Excess Depreciation Claimed Due to Foreign Exchange Gain:The CIT observed that the assessee had not adjusted the foreign exchange gain in the written-down value of assets, resulting in excess depreciation. The assessee argued that under Section 43A, such adjustments are made at the time of actual payment. The Tribunal found that the CIT changed the grounds from those mentioned in the show-cause notice and did not provide a clear reason for holding the AO's order as erroneous. The Tribunal held that the AO had conducted inquiries and that the CIT's revision on this issue was not justified.Conclusion:The Tribunal concluded that the CIT's order under Section 263 was not sustainable as the grounds for revision were different from those mentioned in the show-cause notice, and the AO had conducted necessary inquiries. The Tribunal allowed the assessee's appeal and reversed the CIT's order.