2024 (6) TMI 275 - AT - Income Tax

AO's assessment order erroneous for lacking proper inquiry into provision claims and capital expenditure under section 263

M/s Jila Sahakari Bank Maryadit, Khargone Versus Principal CIT-2, Indore

ITAT Indore upheld PCIT's revision order u/s 263 regarding provision claims and capital expenditure on LAN network/electrical expenses. The tribunal found ... Revision u/s 263 - allowability of the claim of provisions - PCIT held that the order passed by the AO was erroneous and prejudicial to the interest of revenue - capital expenditure on account of LAN network and electrical expenses - HELD THAT:- Since the assessment order is completely silent and it does not exhibit any thought process of the A.O on any of the issues raised by the PCIT therefore, the order of the AO is without application of mind. We are not expressing any view on the merits of the allowability of this claim but it is manifested from the record that the Ld. A.O has not undertaken any exercise to consider the issue of allowability of these claims. Therefore so far as the claim of provisions allowed by the A.O there is a complete lack of the enquiry on the part of the Ld. A.O which renders the assessment order erroneous so far as it is prejudice to the interest of the revenue. AR relied upon various decisions in support to the contention that once the Ld.A.O has conducted an enquiry and accepted the claim of the assessee then the order of the Ld. A.O cannot be held as erroneous merely because the Ld. A.O has not given an elaborate findings while accepting the claim and further once the Ld.A.O has taken a possible view, Ld. PCIT cannot invoke the provision of Section 263 of the I.T. Act merely because he does not agree with the view taken by the Ld. A.O. The other decisions relied upon by the Ld. AR are on the point that once the A.O has conducted an enquiry and allowed the claim then the Ld. PCIT in the proceedings u/s 263 of the I.T. Act cannot set aside the order of Ld. A.O for re-adjudication. All these decisions would not help the case of the assessee before us because there is a complete lack of enquiry on the part of Ld. A.O particularly on the issue of allowability of claim of the provisions. Therefore we do not find any error or illegality in the impugned order of Ld. PCIT to the extent of issue of allowability of the claim of provisions is concerned. As regards the point of capital expenditure on account of LAN network and electrical expenses we find that in the computation of total income the assessee has made disallowance of the said amount of Rs. 27,19,000/- but this fact was not brought to the notice of the PCIT by the assessee in its reply to the show cause notice issued u/s 263 - We further noted that even the assessee has not made any reference of the alleged reply dated 08.12.2015 in the reply to the show cause notice issued u/s 263. Therefore the A.O is directed to verify this fact from the record as to whether the assessee has made suo moto disallowance on account of LAN networking and electrical expenses or not. Hence the impugned order of the Ld. PCIT is upheld. Appeals of the assessee is dismissed. Issues Involved:1. Legality of the order passed u/s 263 of the IT Act, 1961.2. Erroneous and prejudicial nature of the order passed u/s 263.3. Specific points/issues set aside for fresh decision by the A.O.4. Enquiry or investigation about the allowability of expenses and provisions.5. Reference to the assessment year 2014-15.6. Lack of reasonable opportunity for the appellant to present the case.7. Right to amend or modify grounds of appeal.Summary:1. Legality of the Order Passed u/s 263:The assessee contended that the order passed u/s 263 of the IT Act, 1961 is illegal, invalid, and bad in law. The Tribunal examined whether the Principal Commissioner of Income Tax (PCIT) had the jurisdiction to invoke Section 263.2. Erroneous and Prejudicial Nature of the Order:The PCIT held that the order passed by the Assessing Officer (A.O) on 06.01.2016 was erroneous and prejudicial to the interest of revenue. The Tribunal reviewed whether the A.O had conducted due enquiries and verifications during the assessment.3. Specific Points/Issues Set Aside for Fresh Decision:The PCIT set aside the following issues for fresh examination by the A.O:- Dividend Equilisation Fund: Rs. 15,000,000- Computer Fund: Rs. 40,000,000- Furniture and Fixtures Fund: Rs. 30,000,000- Development Fund: Rs. 5,000,000- Loan Inbalance Fund: Rs. 30,000,000- Risk Fund Provisions: Rs. 10,000,000- One Time Settlement Provision: Rs. 4,700,000- President Rahat Fund: Rs. 1,000,000- LAN Networking and Electric Expenses: Rs. 2,719,7904. Enquiry or Investigation about the Allowability of Expenses and Provisions:The PCIT directed the A.O to make enquiries or investigations about the allowability of expenses and provisions amounting to Rs. 138,419,798 debited to the profit and loss account. The Tribunal found that the A.O had not conducted any enquiry on these issues, rendering the assessment order erroneous and prejudicial to the interest of revenue.5. Reference to the Assessment Year 2014-15:The assessee argued that the PCIT erred in holding the order for A.Y 2014-15 as erroneous when no such order existed. The Tribunal noted that the PCIT's reference to A.Y 2014-15 was incorrect and irrelevant to the case.6. Lack of Reasonable Opportunity for the Appellant to Present the Case:The assessee claimed that the PCIT did not provide a reasonable opportunity to present the case, thus vitiating the order u/s 263. The Tribunal found that the A.O had not raised any queries regarding the capital expenditure and provisions, indicating a lack of enquiry.7. Right to Amend or Modify Grounds of Appeal:The appellant reserved the right to add, amend, alter, or modify any grounds and pursue further grounds as required.Conclusion:The Tribunal upheld the order of the PCIT, directing the A.O to reexamine the issues after making necessary enquiries and investigations. The appeal of the assessee was dismissed. The Tribunal emphasized the necessity of due enquiry by the A.O and the PCIT's authority to invoke Section 263 when such enquiry is lacking. The order was pronounced in the open court on 05.06.2024.