2017 (12) TMI 1407 - AT - Income Tax

Tribunal quashes CIT's order under section 263, emphasizing need for justification and due process.

The Tribunal quashed the Principal CIT's order under section 263, holding that the CIT failed to justify the revisionary action and did not adequately ... Revision u/s 263 - Held that:- Notice under section 263 pointing out the errors in the order of the A.O. was issued by the Ld. Principal CIT on 10.03.2017 and a detailed reply to the said notice was filed by the assessee on 24.03.2017 submitting that there were no errors as alleged in the notice under section 263 in the order of assessment passed by the A.O. on merits. Immediately thereafter i.e. on 28.03.2017, the Principal CIT passed the impugned order under section 263 without giving any finding or conclusion as to how the order of the A.O. was erroneous on merits in respect of issues raised in the notice under section 263 and set aside the same on the ground of lack of enquiry by the A.O. without putting the assessee on notice. In our opinion, the ratio of the decision rendered by the coordinate bench of this Tribunal in the case of Infinity Infotech Park Ltd. (2017 (6) TMI 294 - ITAT KOLKATA) thus is squarely applicable in the present case and applying the same, we hold that the impugned order passed by the Ld. Principal CIT under section 263 is liable to be quashed. - Decided in favour of assessee. Issues Involved:1. Jurisdiction and legality of the order passed under section 263 of the Income Tax Act, 1961.2. Whether the order passed by the Assessing Officer (AO) was erroneous or prejudicial to the interest of revenue.3. Disallowance of additional operational and incidental expenses.4. Consideration of the M.B. Shah Commission Report for determining the sale price of ROM (Run of Mines).Issue-wise Detailed Analysis:1. Jurisdiction and Legality of the Order Passed Under Section 263:The assessee contested the jurisdiction and legality of the Principal CIT's order under section 263, arguing that none of the conditions precedent for exercising power under this section were satisfied. It was contended that the AO's order was passed after due enquiry and was in accordance with the law, thus not erroneous or prejudicial to the revenue's interest. The assessee cited the Supreme Court judgment in Malabar Industries Co. Ltd. vs CIT (243 ITR 83) to support its claim that the CIT's revisionary powers were improperly exercised.2. Whether the AO’s Order was Erroneous or Prejudicial to the Interest of Revenue:The Principal CIT identified errors in the AO’s assessment, particularly regarding the undervaluation of sales based on the M.B. Shah Commission Report and the partial disallowance of operational and incidental expenses. The CIT argued that the AO failed to consider the high sale price indicated in the Shah Commission Report and did not fully disallow expenses that should have been disallowed due to an alleged hidden understanding between the assessee and JSPL.3. Disallowance of Additional Operational and Incidental Expenses:The CIT found fault with the AO's disallowance of only 50% of operational and incidental expenses, asserting that the AO should have disallowed the entirety of these expenses. The assessee countered that the AO had made detailed enquiries into these expenses during the assessment proceedings, providing various details and justifications for the expenses claimed. The assessee argued that the AO had applied his mind fully and that the CIT’s additional disallowance was based on assumptions without material evidence.4. Consideration of the M.B. Shah Commission Report for Determining the Sale Price of ROM:The CIT used the M.B. Shah Commission Report to argue that the assessee had undervalued its sales of iron ore (ROM), resulting in a substantial loss of revenue. The assessee rebutted this by explaining that the ROM sold was different from the calibrated lump ore (CLO) referenced in the Shah Commission Report. The assessee highlighted that the ROM required further processing by JSPL, which involved significant value addition and production loss. The assessee provided detailed explanations and supporting documents to show that the sale price of ROM was justified and that the CIT’s reliance on the Shah Commission Report was misplaced.Tribunal’s Findings:The Tribunal noted that the Principal CIT did not provide specific findings on the submissions made by the assessee challenging the errors alleged in the AO’s order. The Tribunal emphasized that the CIT must come to a conclusion and decide that the order is erroneous by conducting necessary enquiries before passing an order under section 263. The Tribunal found that the CIT had set aside the AO’s order on the ground of lack of enquiry without putting the assessee on notice and without giving specific findings on the merits of the issues raised.The Tribunal quashed the Principal CIT’s order under section 263, holding that the CIT had not justified the revisionary action and had failed to consider the detailed submissions made by the assessee. The Tribunal also referenced Explanation 2 to Section 263, noting that it does not override the requirement for the CIT to establish that the AO's order is erroneous and prejudicial to the revenue.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the Principal CIT’s order under section 263. The Tribunal emphasized the need for the CIT to provide specific findings and conduct necessary enquiries before exercising revisionary powers. The Tribunal’s decision underscored the importance of due process and the proper application of legal principles in revising assessment orders.