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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Chennai-3, dated 17.03.2022, and pertains to assessment year 2017-18.
The assessee has raised the following grounds of appeal:
M/s.Tamilnadu Cements Corpn. Ltd. :: 2 ::
The order of revision by the CIT is wrong, illegal and opposed to facts as the· order u/s 143(3) is neither erroneous nor prejudicial to the interest of the Revenue.
2. The CIT failed to note-that the order u/s.143(3) is under appeal before CIT(A) and hence CIT has no jurisdiction to interfere at this juncture.
3. The CIT went wrong in invoking revisionary proceedings u/s.263 as the AO has already enquired into the "prior period expenses" and accepted the claim after due enquiry.
4. The AO having seen the details placed before him during the assessment proceedings and having taken one possible view, the CIT can't impose his view over that of the AO.
5. In any event, the CIT went wrong in setting aside the entire order of assessment.
The brief facts of the case are that the assessee company filed its return of income for the AY 2017-18 on 03.11.2017 admitting a loss of Rs.6,01,57,245/- and said return has been revised on 30.03.2018 admitting a loss of Rs.4,26,16,029/-. The case was picked up for scrutiny and the assessment has been completed u/s.143(3) of the Act, on 26.12.2019, by making addition of Rs.57,66,424/- for belated payment of employees’ contribution towards PF & ESI and loss was assessed at Rs.5,43,90,821/-. However, in the computation of tax sheet, loss of Rs.3,68,49,605/- had been considered.
The case has been, subsequently, taken up for revision proceedings and accordingly, show cause notice u/s.263 of the Act, dated 02.02.2022, has been issued to the assessee. In the said show cause notice, the PCIT observed that although, the assessee has filed revised return admitting loss of Rs.4,26,16,029/-, the AO has considered the loss originally admitted at M/s.Tamilnadu Cements Corpn. Ltd. :: 3 ::
Rs.6,01,57,245/-, which rendered the assessment order erroneous in so far as it is prejudicial to the interest of the Revenue. Further, on perusal of P&L A/c, it is noticed that the assessee had claimed a sum of Rs.42.99 lakhs towards ‘prior period expenses’, but in the computation of total income, this claim of ‘prior period expenses’ should have been considered as inadmissible and withdrawn from the profit. Although, the assessee has not added back ‘prior period expenses’ in the statement of total income, the AO has failed to disallow this inadmissible expenses and thus, opined that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue.
In response to the show cause notice, the assessee submitted that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, because, the AO has considered two issues questioned in the revision proceedings while completing the assessment order u/s.143(3) of the Act. Therefore, assumption of jurisdiction u/s.263 of the Act, is incorrect. The PCIT after considering relevant submissions of the assessee opined that assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue on the issue of erroneous consideration loss declared in original return of income filed by the assessee, even though, the assessee has filed revised return and declared loss, which is less than the amount of loss declared in original return. Further, the assessee has claimed ‘prior period expenses’, however, not added back said expenses in the statement of total income, even
M/s.Tamilnadu Cements Corpn. Ltd. :: 4 :: though, it is inadmissible expenses. The AO failed to examine these aspects in right perspective of law, which rendered the assessment order to be erroneous in so far as it is prejudicial to the interest of the Revenue. Thus, set aside the assessment order passed by the AO u/s.143(3) of the Act, on 26.12.2019 and direct the AO to make a fresh assessment on the basis of issues discussed in 263 proceedings. Aggrieved by the order of the Ld.PCIT, the assessee is in appeal before us.
The Ld.AR for the assessee submitted that the order of the ld.PCIT u/s.263 of the Act, is wrong, illegal and opposed to the facts of the order passed u/s.143(3) of the Act, because, the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. The Ld.Counsel for the assessee referring to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT reported in [2001] 243 ITR 83 (SC) submitted that in order to assume jurisdiction u/s.263 of the Act, twin conditions must be satisfied i.e. the order of the AO must be erroneous and further, it should be prejudicial to the interest of the Revenue. In this case, the order of the AO is neither erroneous, because, although in assessment order, the AO has considered loss declared by the assessee in original return of income filed for the relevant AY, but in the tax computation sheet, the AO has considered loss as per revised return filed by the assessee and thus, it cannot be said that assessment order passed by the AO is erroneous. The assessment order passed by the AO is not prejudicial to the interest of the Revenue on both
M/s.Tamilnadu Cements Corpn. Ltd. :: 5 :: the issues, because, once the assessment order is not erroneous, then it cannot be said that there is prejudicial to the interest of the Revenue, even otherwise, the AO has correctly taken loss as per revised return and computed tax liability. As regards, ‘prior period expenses’, the assessee has filed all details and the AO after considering relevant submissions of the assessee has rightly allowed the claim of the assessee, and thus, assumption of jurisdiction by the ld.PCIT is incorrect.
6. The ld.CIT-DR appearing for the Revenue submitted that if you go by the ratio laid down by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT, the Hon’ble Supreme Court very clearly held that if assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, the ld.PCIT can assume jurisdiction and set aside the assessment order. In this case, the assessment order passed by the AO is erroneous which is evident from the fact that although, the assessee has filed revised return, the AO has considered original return filed by the assessee for the purpose of assessment. Further, the assessee has not disallowed ‘prior period expenses’, but, the AO has failed to examine the issue in right perspective of law. Therefore, it is very clear that on two counts, the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue and thus, the ld.PCIT has rightly invoked the jurisdiction u/s.263 of the Act.
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We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to legal position in so far as the power of the Ld.CIT/ ld.PCIT u/s.263 of the Act. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra), had very categorically held that in order to assume jurisdiction u/s.263 of the Act, twin conditions must be satisfied i.e. (i) the order must be erroneous and (ii) further, it should be prejudicial to the interest of the Revenue. The various High Courts/Tribunals have taken a consistent view on this legal position and held that unless twin conditions embedded u/s.263 of the Act, are satisfied, the ld.PCIT, cannot assume jurisdiction and set aside assessment order passed by the AO u/s.143(3) of the Act, in exercise of his powers conferred u/s.263 of the Act. In this legal back ground, if you examine the facts of the present case, we are of the considered view that the assessment order passed by the AO neither erroneous nor prejudicial to the interest of the Revenue in so far as the first issue of computation of total income by considering loss declared by the assessee. We further noted that although, the AO has taken loss admitted as per original return of income filed by the assessee on 03.11.2017 in the assessment order, but in the computation sheet, the AO has adopted loss declared by the assessee in revised return of income filed on 30.03.2018, which is evident from the fact that the AO has considered current year loss of Rs.3,68,49,605/- in Column-11 of M/s.Tamilnadu Cements Corpn. Ltd. :: 7 ::
computation sheet as per revised return filed by the assessee. Therefore, assumption of jurisdiction by the ld.PCIT on this issue is fails.
In so far as the second issue questioned by the ld.PCIT on disallowance of ‘prior period expenses’, we find that although, the assessee has claimed deduction for ‘prior period expenses’ in the P & L A/c, but did not made any disallowance in statement of total income, even though, said expenses is inadmissible under the law. The AO has failed to consider the disallowance of ‘prior period expenses’ while completing the assessment order u/s.143(3) of the Act. Although, the Ld.Counsel for the assessee submitted that the AO has verified the issue by way of specific notice and the assessee has filed its reply, but on perusal of details filed by the assessee, we could not made out any evidence of the assessee having explained the issue of ‘prior period expenses’ before the AO. Therefore, we are of the considered view that the assessment order passed by the AO on the issue of ‘prior period expenses’ is definitely erroneous and prejudicial to the interest of the Revenue and thus, we are of the considered view that the ld.PCIT has rightly assumed jurisdiction u/s.263 of the Act, and set aside the assessment order passed by the AO on the second issue. To sum up, we are of the considered view that the assumption of jurisdictional by ld.PCIT on the issue of computation of loss is fails and further, assumption of jurisdiction on the issue of ‘prior period expenses’ is in accordance with law. Therefore, we modified the directions of the PCIT’s order dated 17.03.2022 passed u/s.263 of the Act, and direct the AO to re-frame the M/s.Tamilnadu Cements Corpn. Ltd. :: 8 ::
assessment as per the directions of the ld.PCIT only on the issue of disallowance of ‘prior period expenses’ in accordance with law.
In the result, appeal filed by the assessee is partly allowed.