TADE POWERTECH PRIVATE LIMITED,SANGLI vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, PUNE

This is an appeal filed by the assessee directed against the order of ld. Pr. Commissioner of Income Tax-1, Pune [‘PCIT’] dated 15.03.2023 passed u/s 263 of the Income Tax Act, 1961 (‘the Act’) for the assessment year 2018-19.

Briefly, the facts of the case are that the appellant is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of Electrical Equipments and RMU Panels. The Return of Income for the assessment year 2018-19 was filed on 26.10.2018 declaring total Rs.Nil. Against the said return of income, the assessment was completed by the Assessing Officer vide order dated 23.02.2021 passed u/s 143(3) of the Act accepting the returned income. Subsequently, the ld. PCIT, on review of the assessment record, formed an opinion that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue, as the Assessing Officer had failed to examine the allowability of prior period of expenditure of Rs.44,39,675/-. Accordingly, a show-cause notice u/s 263 was issued on 27.02.2023. In response to the said show-cause notice, the appellant had filed a detailed explanation saying that the expenditure of Rs.44,39,675/- though shown as “prior period expenditure” was actually liability for the said expenditure was materialized during the previous year relevant to the assessment year 2018-19. The appellant also explained the circumstances as to how the interest expenditure of the period from 01.07.2016 to 09.05.2017 had crystallized during the previous year relevant to the assessment year under consideration, as extracted by the ld. PCIT vide para 5 of the impugned order. However, the ld. PCIT had opined that merely because the liability had crystallized during the previous year 2018-19 does not alter the fact that the liability pertaining to the period from 01.07.2016 to 09.05.2017 and, accordingly, directed the Assessing Officer to disallow the interest expenditure of Rs.44,39,675/-.

Being aggrieved, the appellant is in appeal before us in the present appeal contending that the ld. PCIT ought not to have exercised the jurisdiction u/s 263 of the Act, inasmuch as, the assessment was taken up for limited scrutiny assessment. The ld. PCIT ought not to have passed the impugned order without considering the fact that the liability for expenditure was crystallized during the previous year relevant to the assessment year under consideration.

Without prejudice to the above, he further submits that the ld. PCIT, without giving any finding that the liability was not crystallized during the previous year relevant to the assessment year under consideration, ought not to have exercised the jurisdiction u/s 263 of the Act placing certain judicial precedents.

On the other hand, ld. CIT-DR supports the order of the ld. PCIT.

We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the validity of 263 by the ld. PCIT. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.

Now, we proceed to examine whether the assessment order passed by the Assessing Officer is erroneous or not. Admittedly, the interest expenditure of Rs.44,39,675/- was shown as a part of prior period expenditure in the Profit & Loss Account. It is settled position of law that the treatment given in the books of account does not determine the allowability or otherwise of expenditure under the provisions of Income Tax Act. It is contention of the appellant that the interest expenditure of Rs.44,39,675/- though pertaining to the