2018 (6) TMI 1389 - AT - Income Tax

Tribunal overturns PCIT's jurisdiction assumption under IT Act, emphasizing assessment must be both erroneous and prejudicial.

The Tribunal found that the Principal Commissioner of Income Tax (PCIT) erred in assuming jurisdiction under section 263 of the Income-tax Act, 1961, ... Revision u/s 263 - payment of royalty - Held that:- There is no dispute that the assessee is paying royalty since the year 2000. The A.Y under consideration is A.Y 2011-12 which means that since the last 10 years Revenue has been accepting the payment of royalty as legitimate revenue expenditure. No new facts have come into existence nor the law has changed. Therefore, the ratio laid down by the Hon'ble Supreme Court in the case of Radhaswami Satsang [1991 (11) TMI 2 - SUPREME COURT] squarely applies. Further, the PCIT’s decision is solely based upon the decision in the case of sister concern Honda SIEL. As mentioned elsewhere the assessee is in existence since the year 2000 and has been paying royalty since past 11 years. Considering the facts of the case in hand, vis a vis the decisions considered by the ld. PCIT for assuming jurisdiction u/s 263 of the Act, we are of the considered opinion that the PCIT has erred in assuming jurisdiction in as much as he has considered the facts of the case of the sister concern without appreciating the facts of the case in hand in true perspective. We are of the considered opinion that the assessment order framed u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of the Revenue. - Decided in favour of assessee. Issues:Jurisdiction of PCIT under section 263 of the Income-tax Act, 1961.Analysis:The appeal pertains to the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income-tax Act, 1961. The PCIT had assumed jurisdiction based on the treatment of royalty expenses in the assessment order for the year 2011-12. The PCIT observed that a portion of the royalty was to be treated as capital expenditure, following a similar decision in a sister concern's case. The PCIT directed a fresh assessment after considering the sister concern's case, which had been decided in favor of the Revenue by the Hon'ble Allahabad High Court and the Hon'ble Supreme Court. The assessee contended that the PCIT wrongly assumed jurisdiction based on incorrect facts and misinterpretation of the sister concern's case.Upon careful consideration, the Tribunal highlighted that the PCIT's exercise of jurisdiction under section 263 requires the assessment order to be both erroneous and prejudicial to the Revenue. The Tribunal cited legal precedents emphasizing that revisionary powers can only be invoked when the Assessing Officer's order is erroneous, not merely due to a difference in interpretation. The Tribunal referenced judgments from the Hon'ble High Court of Bombay and the Hon'ble Gujarat High Court to support this position.The Tribunal further analyzed the facts of the case, noting that the assessee had been paying royalty for over a decade, and no new facts or legal changes had occurred. The Tribunal cited the Hon'ble Supreme Court's decision in Radhaswami Satsang to assert that the PCIT's decision solely relied on the sister concern's case. The Tribunal scrutinized the Hon'ble Supreme Court's judgment in the sister concern's case, emphasizing that the circumstances differed significantly from the present case, where the assessee had been in existence for years and paying royalties.Based on the legal principles and factual distinctions, the Tribunal concluded that the PCIT erred in assuming jurisdiction without a proper appreciation of the facts specific to the present case. The Tribunal held that the assessment order under section 143(3) was neither erroneous nor prejudicial to the Revenue, thereby setting aside the PCIT's order and restoring that of the Assessing Officer.In the final verdict, the Tribunal allowed the appeal of the assessee in ITA No. 2330/DEL/2018, pronouncing the order on 26.06.2018.