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Facts
The assessee appealed against the order of the Pr. Commissioner of Income Tax (PCIT) who invoked Section 263 of the Act. The PCIT observed that the assessee claimed depreciation on car, car insurance, and car loan interest, and also claimed forfeiture of earnest money deposit as an expense. The PCIT believed the Assessing Officer (AO) erred by not disallowing these claims, making the assessment erroneous and prejudicial to the revenue.
Held
The Tribunal found that the assessee had not claimed the expenses related to car depreciation, insurance, and loan interest, nor had income been declared under Section 44AD. Regarding the forfeiture of earnest money deposit (EMD) for coal procurement, the Tribunal held that it was a revenue expense related to the assessee's business operations and not a capital expenditure.
Key Issues
Whether the PCIT correctly invoked Section 263 of the Act, considering the assessment was neither erroneous nor prejudicial to the revenue, and whether the forfeiture of EMD constituted a revenue or capital expenditure.
Sections Cited
263, 37, 44AD, 139, 148
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Income Tax Appellate Tribunal, “D” BENCH, KOLKATA
This is an appeal preferred by the assessee against the order of the Pr. Commissioner of Income Tax(hereinafter referred to as the “Ld. CIT(A)”] dated 04.03.2025 for the AY 2018-19.
The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction u/s 263 of the Act thereby, passing the order u/s 263 of the Act dated 04.03.2025, which is invalid ,nullity and may kindly be quashed.
2.1. The facts in brief are that the ld. PCIT upon perusal of the assessment records observed that assessee has claimed depreciation on car, car insurance and car loan interest aggregating to 2.2. As regards to the second issue, the assessee submitted that the assessee is in the business of purchase of coal from Coal India Limited and its various subsidiaries through e-option schemes. The assessee submitted that through e-auction scheme of Coal India Limited, the assessee has to submit earnest money deposit as security from time to time for participating in the upcoming Spot E- 2.3. After hearing the rival contentions and perusing the materials available on record, we find that the two issues were raised by the ld. PCIT in the show cause notice u/s 263 of the Act; i. In respect of wrong claim of deduction of ₹1,12,423/-, which is in respect of depreciation on car, car insurance and car loan interest. The ld. PCIT also noted that the assessee returned the income from car hire charges u/s 44AD of the Act and thus, the assessee is not entitled to the said expenses. However, as a matter of fact, the assessee has never claimed these expenses in the return filed u/s 139(1) of the Act as well as in the return filed in response to Section 148 of the Act nor returned any income u/s 44AD of the Act. Therefore, the finding of ld. CIT (A) is factually incorrect and against the facts on ii. So far as the second issue is concerned which is qua the forfeiture of EMD paid by the assessee to Eastern Coal Field Limited for participating in E-Auction / bids of coal the rate of which was ₹500 per metric tons during the year. We note that the said claim was as per the EMD forfeiture invoices issued by Eastern Coalfield Limited on which it is mentioned it is for supply of services. In our opinion, the said services are connected with the running and operation of the business of the assessee as the assessee is regularly doing the bidding in Auction conducted by Eastern Coalfields Limited for procurement of coals. We also note that the right of the EMD is as per the E-Auction Scheme 2022, which lays down the term for forfeiture of security deposited as EMD. Therefore, the said forfeiture is not capital in nature but very much of Revenue in nature. Consequently, the observation of PCIT that same are capital in nature are wrong.
2.4. In our opinion, the assessment framed by the ld. AO is neither erroneous nor prejudicial to the interest of the Revenue. On both these issues, the ld. PCIT has wrongly invoked the jurisdiction u/s 263 of the Act without satisfying the twin conditions that the assessment has to be erroneous and prejudicial to the interest of the Revenue. The case of the assessee is squarely covered by the decision of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 07.01.2026.