Revisionary order quashed as wrong allowance caused no prejudice to the interest of Revenue and twin conditions u/s 263 not satisfied-ITAT

Revisionary order quashed as wrong allowance caused no prejudice to the interest of the Revenue and the twin conditions u/s 263 not satisfied-ITAT 

ABCAUS Case Law Citation:
ABCAUS 1204 (2017) (04) ITAT

The Grievance:
The Appellant was aggrieved by the order passed by the Commissioner of Income Tax (‘CIT’) invoking revisionary powers u/s 263 of the Income Tax Act, 1961 (‘the Act’).

Assessment Year : 2010-11
Date/Month of Pronouncement of Judgment: April, 2017

Brief Facts of the Case:
The appellant assessee company filed its electronic return of income belatedly showing a loss of Rs. 2,57,539/- and the assessment was completed u/s 143(3) of the Act accepting loss at Rs 2,57,539/-. The CIT later sought to revise the said assessment on the ground that the Assessing Officer (‘AO’) erred in granting deduction towards expenditure eligible to Rs.27,000/- being Soil Testing Fees, which, in his opinion, was not liable to be deducted as there had been no business in the relevant financial year.

The assessee in its reply filed before the CIT stated that in any case the disallowance would only result in reduction of loss by Rs.27,000/- and since the return was filed belatedly, the assessee in any way would not be eligible for benefit of carry forward of the said loss in terms of Section 80 r.w. 139(3) of the Act. Hence, it was pleaded that there is no prejudice was caused to the interest of the Revenue by the assessment order passed by the AO u/s 143(3).

However, the CIT ignoring the said submission assumed the revisionary jurisdiction and passed order u/s 263 of the Act on the ground that the AO had not examined the facts and details while allowing this expenditure and due to incorrect application of law and wrong assumptions of facts and hence the order passed by him was erroneous and prejudicial to the interest of the Revenue.

Aggrieved by the order of CIT passed u/s 263, the assessee was in appeal before the Tribunal (ITAT).

Observations made by the Tribunal:
The Tribunal found that there was no prejudice that was caused to the interest of the Revenue even if the subject mentioned expenditure towards Soil Testing Fees amounting to Rs.27,000/- was required to be disallowed.

It was observed that undisputed fact was that the assessee had filed its return of income for the relevant assessment year 2010-11 belatedly and hence in any case would not be entitled for carry forward of loss to subsequent years. It was not in dispute that even if the disallowance of Rs.27,000/- remains, it would only result in loss which in any way, was not eligible to be carried forward. Hence we hold that no prejudice was caused to the interest of the Revenue in the facts and circumstances of the instant case.

The ITAT stated that as per law well settled by the Hon’ble Supreme Court in the case of Malabar Industrial Company Ltd. vs. CIT, the recourse to Section 263(1) cannot be taken if the impugned order is erroneous but not prejudicial to the interest of the Revenue; or if it is prejudicial to the interest of the Revenue but not erroneous.

The Tribunal observed that the twin conditions that needs to be to be satisfied before invoking revisionary jurisdiction u/s 263 of the Act were not satisfied in the instant case.

Held:
Revisionary order passed by the CIT u/s 263 of the Act quashed,  grounds raised by the assessee allowed.