2019 (4) TMI 402 - AT - Income Tax

Tribunal overturns CIT's decision under Income-tax Act, emphasizing AO's thorough examination of facts.

M/s. Maharashtra Steels Rolling Mills Private Limited Versus The Asst. Commissioner of Income-tax Central Circled -35 Mumbai.

The Tribunal held that the Commissioner of Income-tax (CIT) erred in invoking revisionary jurisdiction under Section 263 of the Income-tax Act, 1961, as ... Revision u/s 263 - difference of opinion - allegation that assessee has paid higher prices for the goods and services to its sister concern over the FMV and h disallowable u/s 40A(2)(b) - HELD THAT:- The aspect of payment of conversion charges and job charges by the assessee to various parties including the related parties as specified u/s 40A(2)(a) together with the respective rate per MT paid to each of those parties thereon were thoroughly examined by the AO in the course of assessment proceedings itself. AO, after examination of those factual details submitted by the assessee with corresponding evidences thereon, had arrived at a conscious conclusion that no disallowance u/s 40A(2)(a) of the Act was warranted in the facts and circumstances of the case while completing the assessment. We find that the CIT had only tried to substitute his knowledge in technical aspect of the industry thereby trying to substitute his opinion on the impugned issue as against the opinion already framed by the AO. This, in our considered opinion, is not permitted under the revisionary proceedings u/s 263. See GABRIEL INDIA LIMITED [1993 (4) TMI 55 - BOMBAY HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Justification of invoking revisionary jurisdiction under Section 263 of the Income-tax Act, 1961 by the Commissioner of Income-tax (CIT).2. Examination of payments made to related parties under Section 40A(2)(a) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Justification of invoking revisionary jurisdiction under Section 263:The primary issue to be decided was whether the CIT was justified in invoking the revisionary jurisdiction under Section 263 of the Income-tax Act, 1961. The facts revealed that the assessee, a private limited company engaged in steel rolling, had filed its return of income for the assessment year 2005-2006, which was accepted by the Assistant Commissioner of Income-tax (AO) under Section 143(3) of the Act. The CIT issued a show cause notice under Section 263, holding that the AO's order was erroneous and prejudicial to the interest of the revenue, particularly concerning the payment of angle conversion charges to related parties.The Tribunal observed that the CIT tried to substitute his technical knowledge and opinion over the AO's findings, which is not permissible under revisionary proceedings. The Tribunal relied on the decision of the Hon’ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [203 ITR 108], which supports that the CIT cannot substitute his opinion for that of the AO if the AO had conducted a thorough examination.2. Examination of payments made to related parties under Section 40A(2)(a):The CIT's revisionary jurisdiction was invoked due to alleged higher conversion charges paid to related parties, which were claimed to be excessive and unreasonable under Section 40A(2)(a). The CIT highlighted discrepancies in the conversion charges paid to group concerns compared to outside parties, suggesting that the excess amount should be disallowed.The assessee provided detailed responses, including:- Job work was awarded based on geographical proximity and other logistical considerations.- Conversion charges were determined by agreements considering various factors like burning loss and transport costs.- Comparative charts and agreements were submitted to justify the rates paid to related and unrelated parties.The Tribunal noted that the AO had thoroughly examined these details during the assessment proceedings and concluded that no disallowance under Section 40A(2)(a) was warranted. The Tribunal found that the CIT's order overlooked the detailed examination already conducted by the AO and the Tribunal's previous order for the assessment year 2003-2004, which had remanded similar issues back to the AO for detailed consideration.Conclusion:The Tribunal concluded that the CIT had erred in invoking the revisionary jurisdiction under Section 263, as the AO had already conducted a thorough examination of the conversion charges and job work payments. The Tribunal quashed the revision order passed by the CIT, allowing the appeal filed by the assessee. The decision emphasized that the CIT cannot substitute his opinion for the AO's well-reasoned conclusions if the AO has duly examined the relevant facts and evidence.