Proceedings u/s 263 unsustainable as enquiry already carried out by AO

Lakme Lever Private Limited Vs PCIT (ITAT Mumbai)

ITAT Mumbai held that initiation of revisional proceedings u/s 263 of the Income Tax Act unsustainable as AO has carried out enquiry on the issues, however, has failed to discuss the same in the Assessment Order.

Facts- Pr.CIT while perusing the assessment records observed that assessee has claimed EDP expenses to the extent of ₹.2,84,82,194/- in its P&L Account. The said claim of the assessee was allowed by AO while completing the assessment u/s.143(3) of the Act. However, as the said expenditure incurred by the assessee are enduring in nature, AO should have treated the same as capital in nature which AO failed to do so. Further, he observed that, AO failed to disallow the said expenditure by treating it as capital expense and thereby allowed depreciation, if any, as per the provisions of section 32 of the Act.

Further, Pr.CIT also observed that assessee has debited an amount of ₹.2,77,23,272/- in its P&L Account under the head ‘Royalty’. He observed that a careful examination of the Tax Audit Report indicates that TDS u/s. 194J in respect of Fees paid for Technical Services has been shown. However, no TDS in respect of Royalty having been made and paid is shown in Column No.34A of the Tax Audit Report. Therefore, the scope of disallowance @30% of such Royalty u/s.40(a)(ia) of the Act has not been explored. He observed that prima facie it appears that such expenditure appears to be in nature of capital expenditure and therefore, disallowance u/s.37(1) of the Act ought to have been examined. He observed that AO neither made disallowance u/s.40(a)(ia) or u/s.37(1) of the Act nor examined the claim. He observed that AO in not making proper verification of the facts and thereby failed to make correct assessment of the total income for the year under consideration, is erroneous as well as prejudicial to the interests of the revenue.

Conclusion- It is brought to our notice that Assessing Officer has issued various notices u/s. 143(2) and 142(1) and collected the various informations relating to TDS deduction on royalty payments as well as EDP expenses. From the record, we observe that it is not the case wherein Assessing Officer has not made any enquiry, however, he has carried out enquiries but he failed to discuss the same in the Assessment Order. In our considered view, the Assessing Officer has carried out certain verification, therefore the provisions of section 263 in particular Explanation 2 cannot be invoked in the present case.

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