2023 (8) TMI 673 - AT - Income Tax

Tribunal partially allows appeal, overturns penalty initiation, upholds disallowance of unpaid statutory dues.

Majestic Properties Pvt. Ltd. Versus Pr. CIT, Central 3, New Delhi.

The Tribunal partly allowed the appeal, setting aside the order on penalty initiation and disallowance of capital expenditure. However, the revision order ... Revision u/s 263 - non-initiation of penalty u/s 271B - HELD THAT:- We find that submissions of assessee in this regard are cogent. The case laws cited duly establish that no issue of satisfaction by the AO is required for initiating this penalty. Hence, this plank of revision is not sustainable and we set aside the order of Pr.CIT in this regard. Non-disallowance of loss on sale of tower - It is duly emanating that this aspect was raised on the basis of audit objection. The case laws cited by assessee duly establish that revisionary power u/s 263 cannot be initiated on the basis of audit objection. Hence, we set aside the order passed by the ld. Pr.CIT on this issue. Disallowance of statutory dues not paid before the due date of return - We find that ld. Counsel has fairly conceded that he will not be contesting this aspect. Hence, revision order is sustained on this issue. Appeal filed by the assessee is partly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment order can be held to be erroneous and prejudicial to the interests of revenue under the revisionary power of the Pr. CIT solely because penalty proceedings under section 271B were not initiated by the Assessing Officer in the assessment proceedings. 2. Whether the revisional power under section 263 can be exercised to disallow a capital loss (loss on sale of tower capital asset debited to profit & loss account) where the only basis for re-examination is an audit objection recorded in the tax audit report. 3. Whether statutory liabilities (service tax and WCT) not paid on or before the due date of filing the return are not allowable under section 43B for the assessment year in question, and whether such non-allowance justifies revision under section 263. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Initiation of penalty under section 271B and scope of revision under section 263 Legal framework: Section 271B prescribes penalty for failure to get accounts audited under section 44AB; section 263 empowers the Pr. CIT to revise an assessment that is erroneous and prejudicial to the interests of the revenue. Precedent treatment: Tribunal referred to authorities establishing that initiation and imposition of penalty under section 271B are de hors the assessment order and do not require any recorded satisfaction of the Assessing Officer in the assessment order itself; therefore non-initiation during assessment does not constitute an error in the assessment order warranting exercise of section 263. Interpretation and reasoning: The Court accepted the proposition that section 271B proceedings are independent from the assessment process and that the absence of penalty initiation in an assessment order does not render the assessment order legally erroneous nor prejudicial to revenue for purposes of section 263. Because no statutory requirement compels the AO to initiate 271B penalty in the assessment order or to record specific satisfaction within that order, the omission cannot sustain revision. Ratio vs. Obiter: Ratio - omission to initiate section 271B penalty in the assessment order does not, by itself, make the assessment order erroneous and prejudicial to revenue so as to justify revision u/s 263. (This is applied as binding reasoning in the present appellate decision.) Conclusion: The revisional order on the ground of non-initiation of penalty under section 271B is unsustainable and is set aside. Issue 2 - Disallowance of capital loss raised by tax audit objection and limits of section 263 Legal framework: Assessing Officer's duty under the Income-tax Act to make a correct and complete assessment; section 263 permits revision where assessment is erroneous and prejudicial to revenue. Tax audit reports (Form 3CD) may contain audit objections. Precedent treatment: Cited authorities affirm that a revision under section 263 should not be predicated merely on an audit objection; initiation of revision solely because of an audit party's comment is impermissible. The Court relied on those precedents to treat audit objections as an inadequate sole basis for holding an assessment order to be erroneous. Interpretation and reasoning: The impugned capital loss (loss on sale of tower) was pointed out in the tax audit report as 'incorrect allowance of capital expenditure'. The Tribunal reasoned that the Pr. CIT cannot invoke section 263 solely on the basis of such audit objections without establishing that the AO's order is inherently erroneous on legal or factual grounds within the scope of section 263. The material relied upon by the revisional authority was the audit objection itself and not independent or distinct evidence showing the assessment to be erroneous and prejudicial. Ratio vs. Obiter: Ratio - revisionary power under section 263 cannot be exercised merely on the basis of audit objections; an audit objection, standing alone, does not render the assessment order erroneous and prejudicial to revenue. (Applied as decisive ratio for this issue.) Conclusion: The Pr. CIT's revision on the ground of non-disallowance of the capital loss (raised solely by an audit objection) is not sustainable; that part of the revision is set aside. Issue 3 - Disallowance under section 43B of statutory liabilities not paid before due date of filing return Legal framework: Section 43B disallows certain deductions unless statutory liabilities are actually paid on or before the due date of filing the return under section 139(1); deduction is permissible in the year of actual payment where conditions are not met. Precedent treatment: The parties did not contest the legal proposition; the assessee's counsel conceded this ground before the Tribunal, effectively accepting that non-payment of service tax/WCT by the due date rendered the deduction impermissible under section 43B for that assessment year. Interpretation and reasoning: Given the concession, and applying the statutory mandate of section 43B, the Tribunal concluded that the Assessing Officer's allowance of the statutory liabilities despite non-payment before the due date made the assessment order erroneous and prejudicial to revenue on this aspect. Consequently, the revisional action sustaining disallowance was proper. Ratio vs. Obiter: Ratio - statutory liabilities not paid on or before the due date of filing the return are not allowable under section 43B for that assessment year; revision under section 263 is sustainable to correct such erroneous allowance when supported by facts. (Applied as decisive on the conceded issue.) Conclusion: The Pr. CIT's revision sustaining disallowance of statutory liabilities under section 43B is upheld; the assessment is to be reworked accordingly on this narrow ground. Overall Disposition 1. Revision under section 263 set aside insofar as it relied on omission to initiate penalty u/s 271B (not a ground rendering assessment erroneous) and insofar as it relied solely on an audit objection to disallow a capital loss (audit objection alone insufficient to invoke section 263). 2. Revision under section 263 sustained insofar as it corrected the allowance of statutory liabilities not paid before the due date of filing the return, in accordance with section 43B (assessee conceded non-contestation of this point). 3. Resultant appellate outcome: Part allowance of the appeal, setting aside the revisional order on issues 1 and 2 and upholding it on issue 3; AO directed to pass appropriate speaking order consistent with the Tribunal's findings.