2023 (10) TMI 262 - AT - Income Tax

Tribunal quashes tax order, cites lack of natural justice. Appeal allowed.

Hemrajsinh Kiransinh Rathod Versus The PCIT, Valsad

Hemrajsinh Kiransinh Rathod Versus The PCIT, Valsad - TMI Issues Involved:1. Validity of the revision order passed under section 263 of the Income Tax Act, 1961.2. Examination of loan processing fee as capital expenditure.3. Examination of addition of fixed assets without prior notice.Summary:1. Validity of the Revision Order under Section 263:The assessee challenged the correctness of the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, arguing that the revision order was issued without considering detailed submissions made in response to the show cause notice. The PCIT's order was contested on the grounds that the initial assessment by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of revenue and that the revision order should be quashed.2. Examination of Loan Processing Fee:The AO completed the assessment for AY 2018-19, determining the total income after limited scrutiny. The audit party observed that the assessee debited a loan processing fee, which appeared to be a capital expenditure, to the profit and loss account. The PCIT issued a show cause notice under section 263, stating that the AO should have disallowed the loan processing fee, making the assessment erroneous and detrimental to the revenue's interest. The assessee argued that the loan processing fee was for an overdraft facility used for day-to-day business activities, making it a revenue expenditure rather than a capital expenditure.3. Examination of Addition of Fixed Assets Without Prior Notice:The PCIT directed the AO to examine the addition of fixed assets, an issue not initially included in the section 263 notice. The assessee contended that this direction was issued without giving an opportunity to be heard, violating the principle of natural justice. The Tribunal found merit in the assessee's submission, noting that the PCIT should have provided an opportunity of hearing before directing the AO to examine the addition of fixed assets. The Tribunal referenced the Supreme Court's ruling in M. S. Gill vs The Chief Election Commission and Amitabh Bachchan's case, emphasizing the importance of adhering to the principles of natural justice.Conclusion:The Tribunal quashed the PCIT's order, holding that the direction to examine the addition of fixed assets without prior notice and an opportunity of hearing was against the principle of natural justice. The appeal filed by the assessee was allowed.