2023 (3) TMI 465 - AT - Income Tax

Tribunal upholds revision for excess depreciation, dismisses disallowance under section 14A.

Khatu Shyamji Re Rolling Private Limited Versus The Pr. Commissioner of Income Tax-1, Aurangabad

The Tribunal partially allowed the appeal, upholding the revision under section 263 for issues related to excess depreciation and other financial matters. ... Revision u/s 263 by CIT - AO has not discussed anything in the order except Gross Profit of the assessee - PCIT held that the AO failed to make enquiries regarding excess depreciation claimed by the assessee and also as a result of wrong claim of depreciation, there is incorrect computation of profit under section 115JB - PCIT also held that the AO failed to make enquiries regarding the investment in equity shares of Prestige Estate Project Limited, loss on sale of fixed assets, reduction in share application money - HELD THAT:- AO has not carried out any enquiry regarding the impugned issues mentioned in the order under section 263 of the Act. The ld.AR has not brought to our notice any document to demonstrate that the AO had carried out enquiries regarding impugned issues. Assessee has not answered or provided any information regarding the impugned issues. It is also an admitted fact by the assessee that inadvertently excess depreciation has been claimed, which is one of the impugned issues. Computation of taxability under section 115JB is affected by excess depreciation claim. Therefore, to the extent of Computation of Taxability under section 115JB and excess depreciation, there is no doubt that the assessment order is erroneous and prejudicial to the interest of the Revenue. As far as other issues are concerned, we have already mentioned that AO had not carried out any enquiry and assessee has also not made any submissions regarding the remaining issues mentioned in the order under section 263 of the Act. Therefore, we agree with the ld.Pr.CIT that order is erroneous and prejudicial to the interest of the Revenue with reference to the impugned issues mentioned in the order under section 263 of the Act by ld.Pr.CIT, except the issue of 14A disallowance. Accordingly, we uphold the order under section 263, except for the issue of disallowance under section 14A. Disallowance u/s 14A - Pr.CIT has erred in stating that 14A requires proper investigation, because as far as facts of this case are concerned, there is no exempt income and hence no disallowance under section 14A can be made. Therefore, to the extent of 14A issue, we are of the opinion that the order of ld.Pr.CIT under section 263 of the Act, is not sustainable. However, we have already clarified that the order under section 263 is sustained by us on all other issues mentioned in the order under section 263 of the Act. Appeal of assessee partly allowed. Issues:1. Revision under section 263 of the Income Tax Act, 1961 based on failure to make necessary enquiries.2. Incorrect computation of profit under section 115JB due to excess depreciation claim.3. Lack of enquiry regarding investment in equity shares, loss on sale of fixed assets, and reduction in share application money.4. Disallowance under section 14A of the Act.Analysis:1. The appeal challenged an order under section 263 of the Income Tax Act, 1961, issued by the Principal Commissioner of Income Tax-1, Aurangabad, based on the Assessing Officer's failure to conduct essential enquiries. The revision was deemed necessary due to the AO's oversight in investigating issues like excess depreciation claim and other financial aspects. 2. The Principal Commissioner highlighted that the AO did not inquire about the excess depreciation of Rs.12 lakhs claimed by the assessee, impacting the computation of profit under section 115JB. The Tribunal concurred that the AO's failure to address this issue rendered the assessment order erroneous and prejudicial to revenue interests.3. Additionally, the AO neglected to investigate the investment in equity shares, loss on fixed asset sale, and reduction in share application money. The Tribunal found that the absence of enquiries on these matters supported the revision under section 263, as it was detrimental to the Revenue's interests.4. Regarding the disallowance under section 14A, the Tribunal noted that the assessee had no exempt income during the year, making any disallowance unjustified. Citing legal precedents, the Tribunal emphasized that without exempt income, disallowance under section 14A is unwarranted. Thus, the Tribunal held that the revision under section 263 was not sustainable concerning the 14A issue.Conclusion:The Tribunal partially allowed the appeal, upholding the revision under section 263 for issues related to excess depreciation and other financial matters. However, the Tribunal dismissed the revision concerning disallowance under section 14A due to the absence of exempt income. The order was pronounced on 22nd February 2023, reflecting a balanced decision in favor of the Revenue's interests while ensuring fairness and adherence to legal provisions.