2022 (11) TMI 1033 - AT - Income Tax

Tribunal allows appeal on 'prior period expenses' jurisdiction but rejects loss computation, directs reassessment.

M/s Tamilnadu Cements Corporation Ltd. Versus The Dy. Commissioner of Income Tax, Corporate Circle-3 (1) Chennai

M/s Tamilnadu Cements Corporation Ltd. Versus The Dy. Commissioner of Income Tax, Corporate Circle-3 (1) Chennai - TMI Issues Involved:1. Jurisdiction of Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act regarding revision of assessment order.2. Consideration of loss declared in original return versus revised return.3. Treatment of 'prior period expenses' in the assessment order.Jurisdiction of PCIT under Section 263:The appeal was filed against the PCIT's order pertaining to the assessment year 2017-18. The PCIT issued a show cause notice under Section 263, contending that the assessment order was erroneous and prejudicial to the Revenue's interest. The PCIT observed that the AO had not disallowed 'prior period expenses' claimed by the assessee, rendering the assessment order erroneous. The assessee argued that the AO had considered the relevant issues and the PCIT's assumption of jurisdiction was incorrect. The PCIT set aside the assessment order and directed a fresh assessment. The tribunal noted the legal requirement that for the PCIT to assume jurisdiction under Section 263, the order must be both erroneous and prejudicial to the Revenue. It found that the PCIT's jurisdiction was unfounded regarding the computation of loss, as the AO had correctly considered the loss as per the revised return. However, on the issue of 'prior period expenses,' the tribunal agreed that the AO's failure to disallow them made the assessment order erroneous and prejudicial to the Revenue's interest.Consideration of Loss Declared:The assessee initially declared a loss in the original return, which was revised later. The AO considered the loss from the revised return for tax computation but used the original return's loss in the assessment order. The PCIT found this treatment erroneous and prejudicial to the Revenue. The assessee argued that the AO's approach was correct as the tax liability was computed based on the revised return. The tribunal agreed with the assessee, stating that the AO's consideration of the revised return for tax computation was appropriate. Therefore, the PCIT's jurisdiction based on this issue was deemed invalid.Treatment of 'Prior Period Expenses':The PCIT raised concerns about the AO not disallowing the 'prior period expenses' claimed by the assessee. The PCIT found this to be an error prejudicial to the Revenue's interest. The assessee contended that all details were provided, and the AO had rightfully allowed the claim. However, the tribunal noted a lack of evidence that the issue was adequately explained to the AO. Consequently, the tribunal agreed with the PCIT that the treatment of 'prior period expenses' in the assessment order was erroneous and prejudicial to the Revenue. Therefore, the PCIT's jurisdiction on this issue was upheld, and the tribunal directed the AO to reframe the assessment only concerning the disallowance of 'prior period expenses.'In conclusion, the tribunal partially allowed the appeal, affirming the PCIT's jurisdiction on the 'prior period expenses' issue while rejecting it on the loss computation matter. The tribunal directed the AO to reframe the assessment solely on the 'prior period expenses' in accordance with the law.