KOOL HOME BUILDERS,ERNAKULAM-MARADU vs. PRINCIPAL COMMISSIONER OF INCOME TAX, ERNAKULAM,KOCHI
In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that for Section 263 proceedings to be valid, the assessment must be both erroneous and prejudicial to the revenue. Since the assessee had capitalized the disputed expenses and not claimed any deduction, the assessment order, even if considered erroneous, was not prejudicial to the revenue.
What were the facts?
The assessee filed an appeal against an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263, which held the assessment framed under Section 143(3) as erroneous and prejudicial to the revenue. The PCIT had noted that certain capital expenditures were not properly verified by the Assessing Officer (AO).
What were the issues?
Whether the assessment order was erroneous and prejudicial to the interest of revenue, satisfying the twin conditions for invoking Section 263, when the assessee had capitalized expenses and not claimed any deduction.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Waseem Ahmed & Shri Soundararajan K.
Appellant by: Shri Sherry Umman, Advocate Respondent by: Shri Sanjit Kumar Das, CIT-DR Date of Hearing: 03.10.2024 Date of Pronouncement: 21.10.2024 O R D E R Per Bench This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax – 1, Kochi dated 30.03.2022 for Assessment Year (AY) 2017-18.
The only issue raised by the assessee is that the ld. PCIT erred in holding that the assessment framed u/s 143(3) of the Income Tax Act, 1961 (the Act) as erroneous in so far prejudicial to the interest of Revenue.
At the outset, we note that there was a delay of 434 days in filing the appeal by the assessee. The assessee has filed condonation petition supported by affidavit. At the time of hearing, it was submitted that the records of the assessee were lying with the Chartered Accountant who misplaced the same and therefore in the absence of necessary documents the appeal against the Kool Home Builders order passes u/s 263 of the Act could not be filed within the time. The learned A.R. has also filed affidavit of the Auditor placed on pages 5 to 7 of the paper book to this effect. Accordingly the learned A.R. contended that the delay in filing the appeal is not attributable to the assessee. On the other hand, the learned Sr. DR, considering the inordinate delay in filing the appeal by the assessee, opposed to condoning the same.
We have heard the rival contentions of both the parties and perused the materials available on record. Considering the fact that the delay in filing the appeal by the assessee was attributable to the Auditor, which is supported by the affidavit of the Auditor. Accordingly, we hold that there was sufficient cause which prevented the assessee from filing the appeal within the stipulated time. Accordingly, we deem it fit to condone the delay and proceed to adjudicate the issue on merit.
The learned PCIT on examination of the assessment records u/s 263 of the Act found that the assessee has claimed deduction of capital expenditure amounting to Rs. 1,20, 87,830/- and Rs. 80,51,962/-, the fact of which has not been verified by the AO during the assessment proceedings and accordingly he held that the assessment has been framed by the Assessing Officer (AO) without proper verification which renders the assessment as erroneous so far as prejudicial to the interest of Revenue.
Being aggrieved by the order of the learned PCIT the assessee is in appeal before us.
The learned A.R. before us filed a paper book running from pages 1 to 115 and contended that the assessment was framed by the AO after necessary verification and examination of facts on record. Therefore, the same cannot Kool Home Builders be held as erroneous in so far prejudicial to the interest of Revenue on account of non-verification. The learned A.R. further contended that once the expenses in dispute have been capitalized and no deduction of whatsoever has been claimed by the assessee, even if the order is presumed as erroneous but the same cannot be counted as prejudicial to the interest of Revenue. According to the learned A.R., the twin conditions of the order being erroneous and prejudicial to the interest of Revenue should be satisfied so as to invoke the provisions of section 263 of the Act.
On the other hand, the learned Sr. DR vehemently supported the orders of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. It is settled law that for initiating the proceedings u/s 263 of the Act it is compulsory to reach to the conclusion that the assessment framed by the AO is not only erroneous but also prejudicial to the interest of Revenue. On a perusal of the order of the learned PCIT, we note that the learned PCIT has observed that the expenses in dispute have already been capitalized by the assessee in the books of account. Since this fact has already been observed by the learned PCIT in his order, there remains no ambiguity that the assessee has not claimed the benefit of deduction of the impugned expenses in its P&L Account. Thus, we hold that once no deduction has been claimed by the assessee of the impugned expenses in the P&L Account, then we are of the view that even the order is held as erroneous for any reason, the same cannot be held as prejudicial to the interest of Revenue. Accordingly, we are of the considered view that the twins conditions being erroneous in so far prejudicial to the interest of Revenue have not been satisfied which was mandatory for invoking the Kool Home Builders provisions of section 263 of the Act. Accordingly, we hold that the order framed by the learned PCIT u/s 263 of the Act is not sustainable and hence we quash the same. Thus, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced on 21st October, 2024 under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.
More judgments on Section 263
- Gillette India Limited, Mumbai vs Principal Commissioner of Income Tax, JaipurITA 1316/JPR/2026[2018-19]Status: Disposed16 Oct 2026AY 2018-19
- Neo Structo Construction P. Ltd., Ahmedabad vs The Pr. CIT- 3, AhmedabadITA 1216/AHD/2026[2015-2016]Status: Disposed16 Oct 2026AY 2015-2016
- Vimal Harilal Baldania, Gandhidham vs The ITO Ward 2, GandhidhamITA 770/RJT/2025[2017-18]Status: Disposed15 Oct 2026AY 2017-18
- J.D. Marketing, Kolkata vs ITO, Ward 37(1), KolkataITA 1493/KOL/2026[2015-2016]Status: Disposed15 Oct 2026AY 2015-2016
- J.D. Marketing, Kolkata vs ITO, Ward 37(1), KolkataITA 1492/KOL/2026[2013-2014]Status: Disposed15 Oct 2026AY 2013-2014
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