2021 (9) TMI 847 - AT - Income Tax

ITAT allows appeal, reverses revision order due to COVID-19 delay

The Income Tax Appellate Tribunal (ITAT) condoned the delay in filing the appeal due to the COVID-19 pandemic, admitted the appeal, and reversed the ... Revision u/s 263 by CIT - AO failure in not examining the taxpayers sale promotion expenses - AO disallowed 12% of the assessee’s sale promotion expenses - HELD THAT:- CIT-DR fails to dispute that the Assessing Officer had very much disallowed 12% of the assessee’s sale promotion expenses and therefore, it is not an instance of lack of inquiry as has been projected in the revision under challenge. AO directing the assessee to produce bills and vouchers relating to the impugned expenses and on examining the same finding them as being not completely verifiable. AO states that the assessee was unable to produce the bills /vouchers for the expenses so debited, and he further notes that the assessee expressed his inability to produce any further documentary evidences. Faced with these facts the AO proceeds to make an adhoc disallowance of 12% of the expenses. It is abundantly clear therefore that it cannot be said to be a case of no inquiry. Further no case has been made out by the Ld.CIT of inadequacy of inquiry conducted by the AO on the issue. Appeal of the assessee is allowed. Issues:1. Delay in filing the appeal by the assessee.2. Validity of the revision order passed by the Principal Commissioner of Income Tax-3.3. Assessment of sale promotion expenses by the Assessing Officer.Analysis:1. Delay in filing the appeal: The assessee filed an appeal against the order passed by the Principal Commissioner of Income Tax-3 under section 263(1) of the Income Tax Act, 1961. The Registry pointed out a delay of 103 days in filing the appeal. The assessee attributed the delay to the COVID-19 pandemic situation, stating that due to lockdown and personal circumstances, the order came to their notice in August 2020. The Income Tax Appellate Tribunal (ITAT) considered the peculiar facts and circumstances, condoned the delay, and admitted the appeal.2. Validity of the revision order: The Principal Commissioner treated the Assessing Officer's regular assessment as erroneous, specifically regarding the examination of the taxpayer's sale promotion expenses. However, it was noted during the hearing that the Assessing Officer had disallowed 12% of the expenses after directing the assessee to produce bills and vouchers, which were found to be not completely verifiable. The ITAT observed that there was no lack of inquiry by the Assessing Officer, and the revision order failed to establish inadequacy of the inquiry conducted. Referring to legal precedents, including the decision in Malabar Industrial Co. Ltd. vs CIT, the ITAT held that the revisionary jurisdiction can only be invoked if the assessment is both erroneous and causes prejudice to the revenue. As the Assessing Officer had considered the inability of the assessee to produce all supporting evidence before making the disallowance, the ITAT concluded that the Principal Commissioner erred in exercising revisionary jurisdiction, and the revision order was reversed.3. Assessment of sale promotion expenses: The ITAT found that the Assessing Officer had appropriately considered the assessee's inability to provide all supporting evidence before making the ad hoc disallowance of 12% of the sale promotion expenses. The ITAT held that there was no lack of inquiry on the part of the Assessing Officer and reversed the revisionary order, restoring the regular assessment for the relevant assessment year.In conclusion, the ITAT allowed the appeal of the assessee, considering the delay in filing the appeal, the validity of the revision order, and the assessment of sale promotion expenses, and pronounced the order in open court on 24.08.2021.