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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by assessee is directed against revision order dated 27.03.2023 the order dated 27.03.2023 of the Pr. Commissioner of Income Tax, Bhopal for A.Y.2018-19. The assesse has raised following grounds of appeal as under:
“1. That on facts and in the circumstances of case and in law the finding of the learned CIT that the assessment order passed by the A.O in haste without making verification enquiry/ are wholly wrong and unjustified and therefore the said findings be quashed.
ITANo.203/Ind/2023 M.P. State Mining Corporation 2.That on facts and in the circumstances of case and in law the order of the learned CIT is bad in law and without jurisdiction hence be cancelled. 3.That on facts and in the circumstances of case and in law the order passed by the learned A.O allowing the claim of depreciation u / s 32was in accordance with the law and therefore the learned CIT is unjustified in invoking the provision of 263 of the Act. Hence the order u/s. 263 is bad in law 4.That on facts and in the circumstances of case and in law the assessment order passed by the learned A.O is neither erroneous nor prejudicial to the interest of revenue and therefore the order of learned CIT u/s. 263 is bad in law and therefore be quashed. 5.That on facts and in the circumstances of case and in law the order passed by the learned A.O allowing the claim travelling expenses at Rs. 243000 was in accordance with the law and therefore the learned CIT is unjustified in invoking the provision of 263 of the Act. Hence the order u/s. 263 is bad in law.”
The assesse is a Government of MP undertaking and engaged in the business of mining and marketing of Major and Minor Minerals. The assessee filed its return of income for year under consideration on 31.10.2018 declaring total income of Rs.192.81 crores. Thereafter the assessee filed revised return of income on 29.03.2019 declaring total income of Rs.192.54 crores. The case of the assesse was selected for scrutiny under CASS and scrutiny assessment u/s 143(3) was completed on 22.02.2021. Thereafter the Pr. CIT while examining assessment record noted that the certain aspect of the case were not examined properly by the AO during the assessment proceedings and consequently proceedings u/s 263 were initiated by issuing show cause notice dated 13.12.2023. The Pr. CIT took up two issues of allowing the claim of depreciation by the AO on new fixed assets without examining the genuineness of the acquisition of new assets by the assessee and secondly allowing the claim of foreign travel expenses of MD without Page 2 of 9 ITANo.203/Ind/2023 M.P. State Mining Corporation verifying whether the expenses were incurred for business purpose of the assessee or not. In response to the show cause notice the assesse filed its reply and submitted that both claim of expenditure being depreciation on new assets as well as foreign travel expenses have been allowed by the AO as per law. The Pr. CIT was not impressed with the reply of the assessee and observed that no proof of newly acquired assets was examined by the AO during the assessment proceedings and further the AO has not made any inquiry to verify the addition of the fixed assets and allowed the depreciation without such verification. Similarly, it was observed that the AO has not verified if expenses on foreign travel of the MD were for the business purpose or were personal expenditure. The Pr. CIT has held that the AO failed to conduct a proper inquiry on these issues at the time of assessment proceedings. Hence the assessment order passed by the AO as well as erroneous in so far as prejudicial to the interest of the revenue. Accordingly the order passed by the AO u/s 143(3) was set aside on the limited issues of depreciation on new assets and foreign travel expenses of MD. The AO was directed to reframe the assessment order after conducting proper inquiry on these two issues and giving proper opportunity of being heard to the assessee. Aggrieved by the impugned order the assessee has filed the present appeal.
Before the Tribunal Ld. Sr. Counsel has submitted that the assessee has declared the income of more than Rs.192.81 crores and the claim of depreciation of new assets is only Rs.3,18,706/- whereas the expenditure on foreign travel of MD is at Rs.2,43,000/-. The total of these two claims is less than 0.01% of the total revenue/income of the assessee. Thus, Ld. Sr. counsel has submitted that section 263 cannot be invoked for each and every minor error or item of claim to be ITANo.203/Ind/2023 M.P. State Mining Corporation investigated through u/s 263 of the Act. He has further submitted that the AO has conducted a due inquiry as it is apparent from para 2 of the assessment order where the AO has recorded all the facts of the nature of business of the assesse, filing return of income and revised return of income. Since in the revised return of income the assessee has reduced total income the case of the assesse was selected for scrutiny through CASS. The AO has given the details of the issues for examination and verification which included depreciation as per Income Tax Act. Further the AO has also issued show cause notice and asked specific quarries to furnish computation of income for the relevant assessment year and to provide comparison of sales turnover, gross profit, net profit, GP ratio, NP ratio for the year under consideration and previous two years. Thus, the AO has asked the assesse to explain the claim of deduction in the revised return of income reducing the total income in comparison to the original return of income. Once the AO has called comparative details of sales/turnover, gross profit, net profit, GP ratio, and NP ratio of the year under consideration and previous two years then the AO has examined all the claim of the assessee while passing assessment order. The assessee duly complied with the notice as recorded by the AO. Thus, the Ld. Sr. counsel has submitted that invoking the provisions of section 263 on such small issues which were duly considered and examined by the AO is nothing but just a window dressing u/s 263 of the Act without real revenue effect. He has thus pleaded that the impugned order passed by the Pr. CIT be set aside.
On the other hand Ld. DR has submitted that the quantity of the claim allowed by the AO without conducting an inquiry is not relevant if the order is erroneous and prejudicial to the interest of the revenue. He ITANo.203/Ind/2023 M.P. State Mining Corporation has also pointed out that in the consequential order passed by the AO the claim of depreciation has been accepted and allowed by the AO whereas the assesse has failed to prove that the foreign travel expenses has been incurred wholly and exclusively for business purpose of the assessee and consequently the same has been disallowed by the AO. Ld. DR has further contended that when the assessee is not having any business of export or any business connection in the foreign country and particularly the country where the MD of assessee has visited then the said claim of foreign travel expenses are purely personal and cannot be allowed u/s 37 of the Act. He has relied upon the impugned order.
We have considered rival submission as well as relevant material on record. The Pr. CIT has invoked the provisions of section 263 by issuing show cause notice on 13.12.2023 which is reproduced in the impugned order itself as under:
"1…. 2.On perusal of case records, the following facts have been noticed:- i. Depreciation on new Fixed assets:-On perusal of form 3CD it is observed that assessee has made addition in fixed assets in the F.Y. It has added Rs. 23,33,141/- in Fixed assets. {in Furniture & Fittings (10%) Rs98,316/-in Plant & Machinery (15%), Rs.48,595/-, in Plant & Machinery (40%). Rs. 4,08,552/- inIntangible assets (25%), Rs. 17,77,678/-) in FY 2017-18. Assessee has claimed depreciation of Rs.3,18,706/- on this new addition in fixed assets. From the examination of assessment records it is seen that AO has not made any query to verify the addition in fixed assets and has allowed depreciation without such verification. AO has failed to verify if the amount of depreciation claimed on account of addition in fixed assets are genuine or not. AO has not called for any Page 5 of 9 ITANo.203/Ind/2023 M.P. State Mining Corporation documents supporting the addition in fixed assets and thus has allowed depreciation of Rs.3,18,706/- without verification. As the AO failed to do requisite enquiry the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. ii. Foreign Travelling expenses of MD:- In P&L account assessee is claiming Travelling Expense (Foreign Tour of MD) as Rs. 2,43,000/-. From the P& L account it can be said that assessee is not having income from exports. The purpose of such visit is not clear from records. AO has not verified if these expenses were for business purpose or were personal expenditure. In absence of such verification these expenses should have been disallowed u/s 37. As the AO failed to do requisite enquiry the assessment order is erroneous in so far as it is prejudicial to the interest of revenue.” 5.1 Thus, the Pr. CIT has initiated proceedings u/s 263 of the Act on two issues viz (i) depreciation on new fixed assets and (ii) foreign travel expenses of MD. Though the claim of depreciation on new assets is only Rs.3,18,706/- however, the Pr. CIT(A) has raised the issue about lack of inquiry on the part of the AO on the genuineness of addition in fixed assets. So far as the foreign travel expenses is concerned the issue has been taken up by the Pr. CIT as the AO has not verified if these expenses were for business purpose or for personal expenditure. Therefore, the allowability of these expenses as per section 37 of the Act was not at all considered by the AO. We find that the AO has issued notices u/s 142(1) and also asked specific queries from the assessee. The depreciation was one of the issues on which the case of the assessee was taken up for scrutiny and therefore, it cannot be said that the AO has not verified the claim of the assessee regarding the depreciation on new assets. Even otherwise in the audit report it is Page 6 of 9 ITANo.203/Ind/2023 M.P. State Mining Corporation mandatory to give the details of date of acquisition of new assets as well as date of new assets put into used for the purpose of claiming depreciation. Once the auditor has duly verified this record and given specific details of acquisition of the new assets as well as the date of putting the same for used for business purpose then the genuineness of acquisition of new assets cannot be doubted the assesse being a Government undertaking. However, we find that when the assesse is not engaged in business of export or import or even exploring any business outside India then the claim of foreign travel expenses has to be verified on the touch stone of condition provided u/s 37 of the Act. In other words the claim of foreign travel expenses of the MD can be allowed only when the said expenditure is incurred wholly and exclusively for the purpose of business of the assessee. In reply to the show cause notice the assessee has claimed that the said expenditure is allowable in para 3 of the reply as under:
“3. With respect to foreign travelling expenses of MD at Rs. 243000: it is submitted that daring the course of met proceedings complete set of profit & loss account, Balance sheet along with all schedules are submitted before the AO. Since this year the case was selected for complete scrutiny, the learned AO verified all the expenses as claimed in the profit and loss account and framed the assessment. It is submitted that the assessee company is a Madhya Pradesh Government undertaking in which all transactions was fully recorded, verified and approved by the higher authorities of the state government and therefore the expenses of the MD are the genuine business expenditure and not in personal nature and therefore it is fully allowable expenditure as per the provisions of the IT Act.” Page 7 of 9 ITANo.203/Ind/2023 M.P. State Mining Corporation 5.2 Thus, the assessee has claimed that the profit and loss account and balance sheet as well as schedule were available before the AO and company is a Government undertaking and the expenditure is approved by the higher authority of the State Government as expenses are genuine business expenditure and not personal nature. It is pertinent to note that the allowability of the expenditure u/s 37 of the Act does not depend upon the approval of the expenditure by the higher authorities but the assessee has to establish that the expenditure is laid out wholly and exclusively for business purpose. The assessee have not given a single detail about the purpose of the said foreign travel undertaken by the MD and what has actually transacted during the said foreign travel by MD. Therefore, to the said extent when the AO has not even verified allowability of claim of foreign travel of MD it amounts to complete lack of inquiry on the part of the AO. Once the order of the AO even on one issue is without any inquiry then the same is a valid reason for invoking provisions of section 263 of the Act. We do agree with the contention of the Ld. CIT-DR that the quantum of the issue is not relevant when the order of the AO is erroneous for want of inquiry. It is settled proposition that a complete lack of inquiry on the part of the AO renders the assessment order as erroneous so far as the same is prejudicial to the interest of the revenue. Therefore, the order of the AO to the extent of allowing foreign travel expenses of MD without conducting an inquiry on the allowability u/s 37 of the Act is erroneous as well as prejudicial to the interest of revenue and hence the Pr. CIT was justified in invoking the provisions of ITANo.203/Ind/2023 M.P. State Mining Corporation section 263 of the Act. Accordingly we do not find any reason to interfere with the impugned order of the Pr. CIT.
In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 06.05.2024.