2024 (9) TMI 782 - AT - Income Tax

CIT cannot impose own view on reassessment order when AO properly examined subcontracting expenses under section 263

Keller (M) SDN BHD Versus The Deputy Commissioner of Income Tax, International Taxation 1 (2) Chennai.

ITAT Chennai allowed the assessee's appeal against CIT's revision order u/s 263. The tribunal held that CIT erred in finding the AO's reassessment order ... Revision u/s 263 - as per CIT AO had not examined/made inadequate inquiries with respect to provision for subcontracting expenses during the assessment proceedings and AO had not examined the refund claim of the Appellant along with interest - AR contended that in reassessment proceeding, the assessee pursuant to notice u/s.133 (6) has filed reply and explained the queries raised by the ld. AO - HELD THAT:- CIT took into consideration the same set of material which was duly addressed by the AO in reassessment proceedings. CIT cannot sit in appeal on the reassessment order 23.03.2023 reversing findings of the AO and impose his own view of decision making process on same material. There is legal presumption as per Section 114(f) of the Evidence Act that AO passed the reassessment order properly to the best of his ability. Section 114(f) of the evidence Act says: ‘The Court may presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business, in their relation to the facts of the particular case’. The issue of sub-contract expenses admittedly was duly deliberated upon by the AO in Section 147 proceedings after the questionnaire dated 18.03.2023 - CIT wrong in saying that AO has not done proper enquiry. As discussed it is clearly discernible that AO has done properly each and every inquiry pertaining to sub-contract etc. The issue of refund was consequential to reassessment order dated 23.03.2023 and there is no specific order by the AO, hence, CIT cannot invoke jurisdiction u/s. 263 of the Act; Hence, we hold that the order passed by AO u/s. 147 dated 23.03.2023 is not erroneous in so far as it is prejudicial to the interest of the revenue. Since assessee has not challenged order u/s. 154 of the Act dated 8th August, 2023, hence not entitled to agitate in this proceedings. Tribunal order in the cases of Trinity Charitable Trust [2014 (9) TMI 924 - ITAT COCHIN] and Cargo Service Centre India (P) Ltd. [2021 (12) TMI 398 - ITAT MUMBAI] are dehors the facts of the present case hence not applicable. Case law cited by the ld. CIT-DR in the case of DCIT vs. Vasco Sales and Marketing Corporation [2015 (10) TMI 1088 - KERALA HIGH COURT] is on different footing than present case, hence ratio of the said decision is not applicable. In the light of entire conspectus of matter, we are inclined to interfere in the impugned order of CIT. Hence, we accordingly set aside the impugned order. Appeal of the assessee stands allowed. Issues Involved:1. Validity of revisionary proceedings under section 263 of the Income Tax Act.2. Disallowance of provision for subcontracting expenses.3. Denial of refund claim due to the appellant.Detailed Analysis:1. Validity of Revisionary Proceedings under Section 263 of the ActThe appellant contended that the Commissioner of Income Tax (CIT) erred in passing an order under section 263 of the Income Tax Act, 1961, as the twin conditions of the order being 'erroneous' and 'prejudicial to the interests of the revenue' were not satisfied. The CIT concluded that the reassessment order was erroneous and prejudicial without appreciating the material on record and submissions made by the appellant. The CIT alleged that the Assessing Officer (AO) had not conducted adequate inquiries regarding subcontracting expenses and the refund claim.The Tribunal referred to the Delhi High Court judgment in the case of Pr. Commissioner of Income Tax -2, Delhi Vs M/s Clix Finance India Pvt. Ltd., which emphasized that inadequacy of inquiry by the AO does not justify the invocation of powers under Section 263. The Tribunal noted that the AO had conducted inquiries and verifications regarding the subcontracting expenses and refund claim, and thus the CIT's order was not justified. The Tribunal set aside the CIT's order, holding that the AO's reassessment order was not erroneous or prejudicial to the interests of the revenue.2. Disallowance of Provision for Subcontracting ExpensesThe appellant argued that the provision for warranty based on unbilled revenue recorded by Keller India was scientific and should be allowed. The CIT had misinterpreted the accounting treatment followed by the appellant and Keller India, erroneously concluding that the unbilled revenue was not offered to tax by Keller India.The Tribunal found that the AO had duly conducted inquiries and verification on subcontracting expenses during the reassessment proceedings. The AO had issued a notice under section 133(6) to Keller India, which responded with details confirming that the subcontracting expenses were admitted as income and offered to tax. The Tribunal held that the issue of subcontracting expenses was thoroughly examined by the AO, and the CIT's conclusion of inadequate inquiry was incorrect.3. Denial of Refund Claim Due to the AppellantThe appellant contended that the CIT erred in directing the AO to reject the refund determined in the reassessment order, merely because the appellant had failed to furnish a return under section 139 of the Act. The appellant argued that the refund due is a debt owed and payable by the revenue, and the provisions of section 239, which were introduced via Finance Act 2019, were not applicable to the assessment year 2018-19.The Tribunal noted that the AO had examined the refund claim and conducted inquiries during the reassessment proceedings. The AO had determined the refund along with applicable interest in the reassessment order. The Tribunal held that the issue of refund was consequential to the reassessment order and did not warrant a separate order by the AO. The CIT's invocation of jurisdiction under section 263 on the refund issue was not justified.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the CIT's order under section 263. The Tribunal held that the AO had conducted proper inquiries and verification regarding the subcontracting expenses and refund claim, and the reassessment order was not erroneous or prejudicial to the interests of the revenue. The Tribunal emphasized that the CIT cannot impose his own view on the reassessment order when the AO has already taken a cogent view based on the material available.