2016 (6) TMI 1450 - AT - Income Tax

Tribunal overturns Principal Commissioner's jurisdiction in tax assessment revisions.

The Tribunal held that the Principal Commissioner of Income Tax did not have jurisdiction under Section 263 to revise the assessment orders for the years ... Revision u/s 263 - AO find no fault in the payment of hire machinery charges as no specific addition has been made on this account and the AO only applied net profit rate to determine net income of the assessee - HELD THAT:- As in order to exercise power under section 263(1) there must be material before the Commissioner to consider that the order passed by the ITO was erroneous in so far as it is prejudicial to the interests of the revenue and that it must be an order which is not in accordance with the law or which has been passed by the ITO without making any enquiry in undue haste. An order can be said to be prejudicial to the interests of the revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise power. It is well settled that when exercise of statutory power is dependent upon the exercise of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objectives were available will amount to arbitrary exercise of power. ITO in his case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. This decision of the ITO could not be held to be ‘erroneous’ simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the ITO to re-examine the matter. That was not permissible. Hence, the provisions of section 263 were not applicable to the instant case and, therefore, the Commissioner was not justified in setting aside the assessment order. In view of the above facts and circumstances of the case and in view of the above judicial precedents, we allow the appeals filed by the assessee and set aside the order of the ld. CIT and restore the order passed by the A.O. - Decided against revenue. Issues Involved:1. Jurisdiction under Section 2632. Examination of Hire Charges of Machinery3. Examination of Labour Expenses4. Verification of Unsecured Loans5. Withdrawals by Partners6. Examination of Car Expenses (2010-11)7. Examination of TDS on Payments to Sub-ContractorsIssue-wise Detailed Analysis:1. Jurisdiction under Section 263:The primary issue is whether the Principal Commissioner of Income Tax (Pri. CIT) had jurisdiction under Section 263 of the Income Tax Act to revise the assessment orders for the years 2010-11 and 2011-12. The assessee argued that the Assessing Officer (AO) had examined all relevant issues during the assessment proceedings, and therefore, the Pri. CIT's action was without jurisdiction. The Tribunal held that the AO had indeed examined the issues, even if inadequately, and thus, the Pri. CIT did not have the jurisdiction to revise the orders under Section 263.2. Examination of Hire Charges of Machinery:The Pri. CIT raised objections regarding the genuineness of expenses claimed under the head 'Hire Charges of Machinery.' The assessee contended that the AO had examined the books of account, bills, and vouchers, and therefore, the Pri. CIT's objection was not justified. The Tribunal found that the AO had indeed examined the expenses, and the Pri. CIT's assumption of jurisdiction under Section 263 was not justified as it was a case of inadequate enquiry, not lack of enquiry.3. Examination of Labour Expenses:The Pri. CIT alleged that the AO had not properly examined the expenses booked under the head 'Labour Expenses.' The assessee pointed out that the AO had mentioned the examination of labour expenses in the assessment order and had made an addition of Rs. 4,00,000/-. The Tribunal held that the AO had applied his mind and made an addition after due enquiry, and thus, the Pri. CIT's action under Section 263 was not justified.4. Verification of Unsecured Loans:The Pri. CIT objected that the AO had not verified the genuineness of unsecured loans. The assessee provided evidence that the AO had raised queries and received detailed replies, including documentary evidence and confirmed copies of accounts. The Tribunal found that the AO had made adequate enquiries regarding unsecured loans, and therefore, the Pri. CIT's assumption of jurisdiction was not justified.5. Withdrawals by Partners:The Pri. CIT raised concerns about the examination of household expenses of various partners and their families vis-à-vis drawings made by them. The assessee submitted that complete balance sheets and capital accounts of the partners were available with the AO. The Tribunal found that the AO had considered the withdrawals and did not find them to be on the lower side. Thus, the Pri. CIT's objection on this ground was not justified.6. Examination of Car Expenses (2010-11):For the assessment year 2010-11, the Pri. CIT objected that the AO had not examined expenses claimed for running and maintenance of cars. The assessee argued that no such expenses were debited, and the AO had disallowed depreciation after examining the ownership certificates. The Tribunal found that the assessee had not debited car expenses, and the AO's action was correct. Therefore, the Pri. CIT's objection was not justified.7. Examination of TDS on Payments to Sub-Contractors:The Pri. CIT objected that the AO had not examined whether TDS was deducted while making payments to a sub-contractor. The assessee provided evidence that the AO had obtained confirmation from the sub-contractor, including details of TDS deducted. The Tribunal found that the AO had examined this issue, and the Pri. CIT's objection was not justified.Conclusion:The Tribunal concluded that the AO had made adequate enquiries on all the issues raised by the Pri. CIT, and thus, the assumption of jurisdiction under Section 263 was not justified. The appeals filed by the assessee were allowed, and the orders of the Pri. CIT were set aside, restoring the original assessment orders passed by the AO.