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Facts
The assessee appealed against a PCIT order under Section 263 which set aside the Assessing Officer's assessment and directed a fresh assessment. The PCIT ordered verification of additional depreciation claimed under Section 32(1)(iia), CSR expenses claimed under Section 80G, and rental expenses. The assessee argued that the PCIT's order regarding rental expenses exceeded the scope of the Section 263 show-cause notice, and for the other two issues, it constituted a mere 'change of opinion' as they were already examined by the AO.
Held
The Tribunal ruled that the PCIT's direction to verify rental expenses was beyond the scope of the Section 263 show-cause notice, which was limited to additional depreciation and CSR expenses. Furthermore, for the issues of additional depreciation and CSR expenses, the Assessing Officer had already conducted verifications and made disallowances, rendering the PCIT's intervention a mere 'change of opinion' and thus not sustainable. Consequently, the PCIT's order was deemed beyond the provisions of Section 263 and did not survive.
Key Issues
Whether a PCIT's order under Section 263 can exceed the scope of the show-cause notice by directing verification of new issues, and whether it can revise an assessment based on issues already examined by the Assessing Officer, constituting a mere change of opinion.
Sections Cited
263, 32(1)(iia), 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Ms. Suchitra Kamble & Shri Narendra Prasad Sinha
आदेश/ORDER
Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 30-03- 2025 passed by Principal Commission of Income, PCIT, Ahmedabad-3 for assessment year 2020-21.
The grounds of appeal
are as under:- “1. The order passed by the PCIT is void-ab-initio as it constitutes an overreach of authority as per grounds of appeal attached.
2. Disallowance of additional Depreciation u/s 32(1)(iia) of Rs. 29,54,60,265/- as per grounds of appeal attached.
4. Disallowance of rental expense without providing opportunity of being heard as per grounds of appeal attached.”
3. The assessee company filed original return of income declaring income of Rs. 1,13,28,39,640/-. The case of the assessee was selected for complete scrutiny. The statutory notices issued to the assessee and in response to the said notices were received along with details by the Assessing Officer. The assessee company is engaged in the business of procurement and purchase of natural gas, compressed natural gas, CNG, Piped Natural Gas-PNG or any other gaseous fuels and sales, supply and distribution of the same in specifically identified location of Gujarat. The Assessing Officer made addition of Rs. 9,88,88,135/- in respect of initial connection charge, disallowance of depreciation, disallowance of interest and employees contribution to EPF being the disallowance of expenses. The Assessing Officer made disallowance of deduction of health and education cess amounting to Rs. 1,52,25,365/-. The Pr. CIT noticed that the company claimed additional depreciation under sub-clause (iia) of section 32(1) of the Act to the tune of Rs. 29,54,60,265/-. Additional depreciation u/s. 32(1) (iia) is allowable to an assessee who is engaged in the business of manufacturing or production of any article or thing or in the business of generation or generation and distribution of power. The Pr. CIT observed mere processing of compression of natural gas cannot be said to be a manufacturing activity for the purpose of claiming additional depreciation u/s. 32(1)(iia) of the Act. The Pr. CIT further observed that the company debited Rs. 2,01,16,000/- CSR expenditure in its profit and loss account. However as per the statement of computation of total income, Sabarmati Gas Ltd., A.Y. 2020-21 the company had claimed deduction to the tune of Rs. 2 crore from income on account of donation u/s. 80G of the Act. The Pr. CIT observed that deduction u/s. 80G was not allowable on the CSR expenses and the same should have been disallowed by the Assessing Officer. The Pr. CIT observed that deduction u/s. 80G was not allowable on the CSR expenses and the same should have been disallowed by the Assessing Officer. The Pr. CIT issued noticed u/s 263 of the Act dated 04-02-2025. The assessee filed reply/submissions dated 12-02-2025. The Pr. CIT set aside the assessment order and directed the Assessing Officer to pass a fresh assessment order as well as verify the rental expense shown by the assessee at the time of assessment proceedings in consonance with the order passed u/s. 263 of the Act. The Pr. CIT observed that the claim of additional depreciation, verify the TDS on rent and donation in the CRS, the necessary inquiry was not done by the Assessing Officer.
Being aggrieved by the order u/s. 263 of the Act, the assessee filed appeal before us.
The ld. A.R. submitted that section 263 notice dated 04-02-2025 as well as another notice dated 13-02-2025 was only restricted to the additional depreciation u/s. 32(1)(iia) of the Act and CSR expenditure which was claimed u/s. 80G as well but nowhere verification of rental expenses was mentioned. Thus, the order passed u/s. 263 to verify the rental expenses was beyond the scope of notice u/s. 263 of the Act and hence the order passed u/s. 263 of the Act does not survive. Beside this, the ld. A.R. submitted that as regards the additional depreciation disallowance, the Sabarmati Gas Ltd., A.Y. 2020-21 Assessing Officer after taking cognizance has already disallowed the depreciation of Rs. 2,08,08,398/-. Thus, the invocation of the provisions of section 263 of the Act by Pr. CIT is merely a change of opinion and is beyond the scope of provisions of section 263 of the Act. The ld. A.R. further submitted that the verification in respect of CSR expenses claimed u/s. 80G, the said issue is also taken into account by the Assessing Officer during the assessment proceedings and therefore it is merely a change of opinion which is beyond the scope of provisions of section 263 of the Act.
The ld. D.R. relied upon the assessment order and the order of the Pr. CIT passed u/s. 263 of the Act.
We have heard both the parties and perused all the material available on record. It is pertinent to note that the notice was issued on the two accounts u/s. 263 of the Act i.e. disallowance CSR expenses which was already claimed u/s. 80G and disallowance of additional depreciation u/s. 37(1)(iia) of the Act. But in para 12 wherein the direction was given by the Pr. CIT to verify the rental expenses shown by the assessee at the time of assessment proceedings was no-where mentioned in the show cause notice issued u/s. 263 of the Act while setting aside the assessment order. On the issue which was not at all mentioned in the notice issued u/s. 263 of the Act, the order passed by PCIT travels beyond the provisions of section 263 of the Act. In fact, the issues on which the notice issued u/s. 263 though discussed was not at all called upon by the Pr. CIT, while Sabarmati Gas Ltd., A.Y. 2020-21 giving the direction to the Assessing Officer to be looked into. Beside this, the assessee at the time of assessment proceedings has given all the details related to the disallowance of depreciation as quoted additional depreciation u/s. 32(1)(iia) of the Act as well as the CSR expenses along with the 80G deduction and after verifying these details, the Assessing Officer in fact has disallowed depreciation to the extent of Rs. 2,08,08,398/- in the original assessment itself. Thus, the Pr. CIT cannot state that there was no verification on the part of the Assessing Officer. Thus, the Pr. CIT has not taken into account the condition under which section 263 which is a revisionary power can be exercised in the present assessee’s case. It is only passed on the issue which was totally beyond the scope of notice u/s. 263 of the Act. Thus, the order passed u/s. 263 does not survive. The appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.