2019 (12) TMI 1033 - AT - Income Tax

Tribunal quashes Principal Commissioner's tax order, rules in favor of assessee

Eveready Industries India Ltd. Versus Principal Commissioner of Income-tax, Kolkat-4, Kolkata.

Eveready Industries India Ltd. Versus Principal Commissioner of Income-tax, Kolkat-4, Kolkata. - TMI Issues Involved:1. Validity of the Principal Commissioner of Income Tax (Pr. CIT) exercising revisional jurisdiction under Section 263 of the Income Tax Act.2. Alleged mismatch in turnover.3. Non-reference to Transfer Pricing Officer (TPO) for related party transactions.4. Disallowance under Section 14A of the Income Tax Act.5. Valuation of property sold and applicability of Section 50C.6. Write-off of fixed assets.7. Deduction under Section 80IC of the Income Tax Act.8. Verification of large other expenses in the Profit & Loss Account.Issue-wise Detailed Analysis:1. Validity of Pr. CIT Exercising Revisional Jurisdiction Under Section 263:The Tribunal examined whether the conditions for invoking Section 263 were satisfied. The Pr. CIT must prove that the AO's order was both erroneous and prejudicial to the interests of the Revenue. The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which requires both conditions to be met. The Tribunal emphasized that the Pr. CIT must demonstrate a clear error in the AO’s order that caused prejudice to the Revenue.2. Alleged Mismatch in Turnover:The Tribunal found that the AO had specifically examined the alleged mismatch in turnover during the assessment. The assessee had provided a reconciliation statement, and the AO was satisfied with the explanation. The Pr. CIT did not bring any material to disprove the assessee’s explanations. Therefore, the Tribunal held that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue on this issue.3. Non-reference to TPO for Related Party Transactions:The Tribunal noted that the case was not selected for scrutiny on transfer pricing risk parameters. The Pr. CIT's assumption that the case required a mandatory reference to the TPO was incorrect. The Tribunal emphasized that the AO had conducted enquiries regarding the assessee's international transactions and found no need for a TPO reference. The Tribunal also noted that the relevant provision of Section 92BA(i) had been omitted by the Finance Act, 2017, and any reference to the TPO under this clause would be invalid. Therefore, the Tribunal set aside the Pr. CIT's order on this issue.4. Disallowance Under Section 14A:The Tribunal found that the AO had enquired into the applicability of Section 14A and decided not to make a disallowance as the assessee did not earn any tax-free dividend during the relevant year. The AO's decision was in line with judicial precedents, including those from the jurisdictional High Court. Therefore, the Tribunal held that the AO's order was not erroneous or prejudicial to the interests of the Revenue.5. Valuation of Property Sold and Applicability of Section 50C:The Tribunal noted that the AO had examined the sale of the factory building and found no discrepancy. The assessee had provided a valuation report and TDS certificates, which the AO verified. The Tribunal held that the AO's order did not suffer from any error as the sale consideration was correctly accounted for, and no income was assessed under the head 'Capital Gains'. Therefore, the Pr. CIT's order on this issue was set aside.6. Write-off of Fixed Assets:The Tribunal found that the assessee did not separately claim a deduction for the write-off of fixed assets in its Profit & Loss Account. The loss on the sale of fixed assets was netted off against the profit on the sale of other fixed assets. The Pr. CIT did not point out any specific error in the AO's assessment. Therefore, the Tribunal held that the AO's order was not erroneous or prejudicial to the interests of the Revenue.7. Deduction Under Section 80IC:The Tribunal noted that the AO had allowed the deduction under Section 80IC after examining the relevant documents and reports. The income from scrap sales was correctly included in the eligible profits for deduction. The Tribunal found that the AO's decision was in line with judicial precedents and not erroneous. Therefore, the Pr. CIT's order on this issue was set aside.8. Verification of Large Other Expenses in the Profit & Loss Account:The Tribunal found that the AO had examined the 'Other Expenses' and was satisfied with the explanation provided by the assessee. The Pr. CIT did not point out any specific instance of disallowable expenses. The Tribunal held that the AO's order was not erroneous or prejudicial to the interests of the Revenue.Conclusion:The Tribunal held that the Pr. CIT's order under Section 263 was without jurisdiction as the AO's order was neither erroneous nor prejudicial to the interests of the Revenue. The appeal of the assessee was allowed, and the Pr. CIT's order was quashed.