In a recent ruling, the Ahmedabad bench of the Income Tax Appellate Tribunal ( ITAT ) invalidated the action of the Principal Commissioner of Income Tax ( PCIT ) in initiating revisionary proceedings under Section 263 of the Income Tax Act, 1961, as the Assessing Officer ( AO ) had taken a legally plausible view.
In this case, the assessee, Kiri Industries Ltd., had filed its Income Tax Returns for the Assessment Year ( AY ) 2018-19 on 27-03-2019, declaring total income at nil.
The Assessing Officer ( AO ) completed the assessment under Section 143(3) of the Income Tax Act, 1961, on 22-04-2021, determining the assessed income at Rs. 3,37,97,789. The AO made several additions, including Rs. 1,56,10,238 under Section 14A, etc.
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The Principal Commissioner of Income Tax ( PCIT ) noted that the AO failed to disallow certain expenses, which were categorized as penalties by the auditors of the assessee company. A notice was issued by the PCIT under Section 263 of the Income Tax Act, 1961, to the assessee company, asking them to explain why the assessment order should not be revised.
During the hearing, it was contended by the assessee that the interest, amounting to Rs. 13,56,539, should be allowed under Section 37(1) of the Income Tax Act as it compensated the government for the loss of interest.
Although explanations were provided by the assessee, the PCIT was of the view that the AO had erred in not considering the audit report, which indicated the inadmissibility of the claimed interest. The PCIT, under Section 263 of the income tax statute, set aside the AO’s order and directed the latter to re-evaluate the claim regarding the interest on late payment of TDS amounting to Rs. 13,56,539.
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It was contended by the counsel on behalf of the assessee that the order passed by AO was neither erroneous nor prejudicial to revenue interests, thus, failing to satisfy the twin conditions required to invoke Section 263 of the Income Tax Act, 1961.
The ITAT bench observed that the view taken by the AO was a legally plausible view, and thus the PCIT has erred in invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
The bench, comprising of Annapurna Gupta ( Accountant Memeber ) and Siddhartha Nautiyal ( Judicial Member), allowed the appeal filed by the assessee.
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