Khoday India Limited Vs DCIT (ITAT Bangalore)
Bangalore ITAT Quashes Section 263 Order: No Revision Possible When Alleged Expenditure Was Never Claimed
The Bangalore ITAT quashed the revisionary order passed under Section 263, holding that the very foundation of the revision proceedings collapsed when the Revenue failed to establish that the assessee had ever claimed the alleged expenditure sought to be disallowed.
The PCIT had invoked Section 263 on the allegation that the assessee had incurred commission expenditure of ₹18.84 lakh towards alleged illegal payments in connection with liquor sales and that the Assessing Officer had allowed the deduction without proper verification during assessment proceedings under Section 153A. According to the PCIT, such expenditure was potentially hit by Section 37(1) and therefore required examination.
The assessee consistently contended that it had never claimed any such expenditure in its books or return of income and had repeatedly sought details, supporting documents and cross-examination of the persons whose statements allegedly formed the basis of the proceedings. It was also argued that no material had been supplied establishing any nexus between the assessee and the alleged recipients of the commission.
Before the Tribunal, it emerged that the revision proceedings were triggered on the basis of information received from a search conducted in the case of the Tuteja, Bhatia and Dhand Group, where a satisfaction note allegedly referred to commission payments by the assessee. However, despite specific assertions by the assessee, neither the PCIT nor the Department could demonstrate that the assessee had actually claimed deduction of ₹18.84 lakh in the relevant year.
The Tribunal observed that the entire revisionary order proceeded on the assumption that the Assessing Officer had allowed the impugned expenditure without verification. However, if no such expenditure was claimed at all, the question of the Assessing Officer erroneously allowing the deduction simply did not arise. Consequently, the essential conditions for invoking Section 263, namely that the assessment order must be both erroneous and prejudicial to the interests of the Revenue, were not satisfied.
Holding that the Revenue had failed to establish the most basic factual premise on which the revision was founded, the ITAT concluded that the Section 263 order was devoid of merit and unsustainable in law. Accordingly, the revisionary order was quashed and the assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
