2022 (11) TMI 652 - AT - Income Tax

Tribunal upholds CIT(A)'s order, AO's jurisdiction exceeded in adding interest expenses

The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal as the Assessing Officer exceeded his jurisdiction by adding interest expenses on ... Validity of order of CIT(A) deleting the additions made the AO - AO passed the order as per the direction of CIT in the revision order u/s 263 by CIT - disallowance made by the AO beyond the scope of direction given by the CIT - HELD THAT:- Hon’ble Gujarat High Court in the case of CIT vs. D.N. Dosani. [2005 (10) TMI 35 - GUJARAT HIGH COURT] has observed that the powers of the AO is confined to items for which revisional directions have been given and the AO is not entitled to consider any other item afresh for making additions under guise of framing fresh assessment in pursuance of revisional directions. The same view has been echoed in plethora of other judicial precedents, many of which has been noticed by the CIT(A) as well. We are thus not inclined to reiterate the sacro sanct principles. The action of the CIT(A) in reversing the additions made by AO wholly unconnected to the directions given in revisional order is thus in consonance with law delineated in judicial precedents and hence does not warrant any interference. We thus see no merit in the appeal of the Revenue. Issues Involved:1. Interpretation of the scope of Section 263 of the Income Tax Act.2. Assessing Officer's authority to expand the scope of assessment under Section 143(3) r.w. Section 263.3. Disallowance of interest expenses incurred on delayed payment of EDC/IDC.4. Legality and correctness of the CIT(A)'s order.Detailed Analysis:1. Interpretation of the Scope of Section 263 of the Income Tax Act:The primary issue revolves around whether the CIT(A) erred in interpreting the scope of Section 263 of the Income Tax Act. The Revenue contended that the CIT(A) failed to appreciate that the assessment was set aside by the Pr. CIT(C), Gurgaon, directing the Assessing Officer (AO) to complete the assessment de-novo. The CIT(A) ruled that the AO's jurisdiction in the consequential proceedings is confined to the issues specified in the revisional order under Section 263 and cannot extend beyond those directions.2. Assessing Officer's Authority to Expand the Scope of Assessment under Section 143(3) r.w. Section 263:The CIT(A) and the Tribunal examined whether the AO could expand the scope of assessment to include issues not covered in the revisional order. The Tribunal upheld the CIT(A)'s view that the AO's authority is limited to the specific issues mentioned in the revisional order. The Tribunal cited judicial precedents, including the Hon'ble Gujarat High Court's decision in CIT vs. D.N. Dosani, which held that the AO cannot consider any other items afresh for making additions under the guise of framing a fresh assessment in pursuance of revisional directions.3. Disallowance of Interest Expenses Incurred on Delayed Payment of EDC/IDC:The AO had disallowed Rs. 11,52,42,000 on account of interest expenses incurred on delayed payment of External Development Charges (EDC) and Internal Development Charges (IDC). The CIT(A) found that these disallowances were not part of the issues specified in the Pr. CIT's order under Section 263. The CIT(A) ruled that the interest costs on EDC and IDC were compensatory in nature and not penal, referencing various judicial pronouncements, including the Supreme Court's decision in Prakash Cotton Mills P. Ltd. v. Commissioner of Income Tax, which distinguished between compensatory and penal charges for the purpose of allowable deductions under Section 37(1) of the Act.4. Legality and Correctness of the CIT(A)'s Order:The Tribunal concurred with the CIT(A) that the AO overstepped his jurisdiction by making additions unrelated to the directions in the revisional order. The Tribunal noted that judicial precedents consistently support the principle that the AO's powers are confined to the items specified in the revisional directions. The Tribunal found no merit in the Revenue's appeal, affirming that the CIT(A)'s action was in accordance with established legal principles and did not warrant interference.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the AO's additions of interest expenses on EDC/IDC were beyond the scope of the revisional directions under Section 263. The Tribunal reinforced the principle that the AO's authority in reassessment is limited to the issues specified in the revisional order, aligning with judicial precedents. The appeal was dismissed, and the CIT(A)'s order was deemed legally sound and justified.