TaxTMI 
TaxTMI 
2019 (5) TMI 991
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....s as set out in show cause notice issued u/s 263 of the Act. i) That the Assessee made donation to DC, Bellary towards contribution to social work in relation to construction of Ring Road around Bellary to the tune of 10,00,00,000/- was claimed as business expenditure and allowed by the AO. The action of the AO in allowing the said claim as business expenditure was incorrect. ii) The assessee had made cash payments in contravention of section 40A(3) to the tune of Rs. 79,33,710/- which was also not considered for disallowance while computing the business income resulting in under assessment of the same. iii) The assessee while claiming expenses under Personnel expenses- salaries, wages and bonus had debited an amount of Rs. 2,38,88,552/- being provisions for group incentive to staff, which ought to have been disallowed and added to the total income while concluding the assessment Since the said sum was a provision made in P & L account is not an allowable expenditure under the IT Act. iv The assessee debited an amount of Rs. 1,63,86,153/- as Prior Period adjustments. The assessee company was following mercantile system of accounting. The A.O failed to verify the allowabil....
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....hat the sum of Rs. 10 crores paid by the assessee to Bellary DC was in the nature of donation and, therefore, cannot be regarded as business expenditure. 2) Cash payment made in violation of sec. 40A(3) of the Act which were claimed by the assesee to be statutory dues and hence outside the purview of sec. 40A(3) of the Act were not proved to be payments made towards statutory liabilities and paid in areas where there were no banking facilities. The CIT, therefore held that an examination is required to be made by the AO in this regard. 3) As far as the provision debited to profit and loss account is concerned, the CIT(A) was of the view that provision made in the books of account cannot be construed as actual of liability under mercantile system of accounting and therefore, the provisions debited in the profit and loss account on account of personal expenses like salary wages and bonus is not an allowable expenditure. 4) In the prior period adjustment, the CIT held that since the assesee was following mercantile system of accounting only expenses which have accrued or arisen to the assesee during the relevant previous year should be allowed as deduction. He also held with ref....
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....n the case of CIT VS. Sunbeam Auto Ltd., Ltd. 332 ITR 167, wherein Hon'ble Delhi High Court held that there is a difference between 'lack of enquiry' and 'no enquiry' the Hon'ble Court held that jurisdiction u/s 263 of the Act can be invoked only in the case of 'no enquiry' made by the AO and not in case where the enquiries were made by the AO but the CIT construes them to be in adequate. The ld counsel for the assessee also placed reliance on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Saravana Developers in ITA 68/2014 judgment dated 21/1/2016 wherein the Hon'ble Court held that the Explanation to sec. 263 of the Act which was introduced by the Finance Act of 2015 w.e.f 1/6/2015 was prospective and cannot be applied to an earlier assessment year prior to the aforesaid amendment coming into force. Explanation - 2 so introduced sets out instances where order of the AO can be considered as prejudicial to the interest of the Revenue and erroneous. The Explanation says a case of the lack of enquiry also is an instance of the order of the AO being regarded as erroneous and prejudicial to the Revenue. The ld counsel for the assessee submitted that this amendment ....
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....ounsel submit that this is the legal position on authority, we are afraid that to accept a submission of this nature would be to give a free hand to the assessing authority, just to pass orders without reasoning and to spell out reasons only in a situation where the finding is to be against the assessee or any claim put forth by the assessee is denied. 28. We are of the clear opinion that there cannot be any dichotomy of this nature, as every conclusion and finding by the assessing authority should be supported by reasons, however brief it may be, and in a situation where it is only a question of computation in accordance with relevant articles of a double taxation avoidance agreements and that should be clearly indicated in the order of the assessing authority, whether or not the assessee had given particulars or details of it. It is the duty of the assessing authority to do that and if the assessing authority had failed in that, more so in extending a tax relief to the assessee, the order definitely constitutes an order not merely erroneous but also prejudicial to the interest of the revenue and therefore while the commissioner was justified in exercising the jurisdiction under....