2017 (12) TMI 117 - AT - Income Tax

Tribunal Upholds CIT's Section 263 Orders, Stresses Capital vs. Revenue Expenditure Distinction

The Tribunal upheld the CIT's orders under section 263 of the IT Act, dismissing the appeals. It emphasized the importance of distinguishing between ... Revision u/s 263 - allowability of capital expenditure out of the revenue receipts - Held that:- CIT during the revision proceedings found that the assessee had made the payments for capital expenditure and claimed as revenue expenditure which is not allowable. Hence, the CIT has taken up the case for revision and held that the order passed by the AO was erroneous and prejudicial to the interest of the revenue. The issue with regard to the allowability of capital expenditure out of the revenue receipts was not examined by the AO and the same was not pending before the CIT(A). Therefore, as per provisions of section 263, the CIT has rightly taken up the case for revision u/s 263. The Ld.AR did not bring any judgement or decision in support of his argument. Therefore, we do not find any infirmity in the order of the Ld.CIT and the same is upheld. The assessee’s appeal on this ground is dismissed. Allowance of revenue expenditure - Held that:- The assessee is not enjoying exemption u/s 11 & 12. Hence the voluntary contribution received by the assessee is taxable income u/s 2(24)(iia) and only the revenue expenditure is allowable deduction. In the instant case, the AO allowed the entire payments as revenue expenditure without verifying the nature of expenditure which included the capital payments. Since the capital expenditure is not allowable, the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue, and the CIT has rightly invoked the provisions of section 263 of the Act and set aside the order of the AO. Therefore, we do not find any error in the order passed by the CIT and the same is upheld. - Decided against assessee. Issues Involved:Validity of order passed by CIT (E) u/s 263 during pendency of appeal before CIT(A)Validity of invoking provisions u/s 263 of IT ActIssue 1: Validity of order passed by CIT (E) u/s 263 during pendency of appeal before CIT(A):The assessee contended that the CIT is not empowered to revise the order during the pendency of appeal before the CIT(A). The AO had completed the assessment treating the assessee as an AOP and disallowed exemption u/s 11 and 12 due to lack of registration u/s 12A. The CIT, during the revision proceedings, found capital expenditure claimed as revenue expenditure, not examined by the AO or pending before CIT(A. The Tribunal upheld the CIT's decision, stating that the issues were distinct, and the CIT had the authority to revise the order u/s 263. The Tribunal dismissed the appeal, emphasizing the absence of any supporting evidence or legal precedent provided by the assessee's representative.Issue 2: Validity of invoking provisions u/s 263 of IT Act:The second issue revolved around the validity of invoking section 263 by the CIT. The assessee argued that the AO's assessment was neither erroneous nor prejudicial to revenue. However, the CIT found that the AO allowed capital expenditure as revenue without verification, leading to an error detrimental to revenue. The Tribunal concurred with the CIT's decision, emphasizing that the AO's failure to distinguish capital and revenue expenditure rendered the assessment erroneous. As a result, the Tribunal upheld the CIT's invocation of section 263, dismissing the assessee's appeal.In conclusion, the Tribunal dismissed the appeals, upholding the CIT's orders under section 263 of the IT Act. The judgment highlighted the importance of distinguishing between capital and revenue expenditure for accurate assessments and reiterated the CIT's authority to revise orders independently of pending appeals before the CIT(A).