ITAT: Mere Disagreement with AO’s View Doesn’t Justify Revision Under Section 263 [Read Order]

Godrej Agrovet Limited, an agribusiness player engaged in animal feed, agricultural products, and crude palm oil, had filed its return of income for Assessment Year 2018–19 declaring a total income of ₹254.21 crore. The return was scrutinized under Section 143(3) read with Section 144B, resulting in a minor upward revision to ₹254.81 crore. However, the PCIT subsequently invoked revisionary powers under Section 263, citing three main reasons: Excess deduction claimed under Section 35CCC (₹10.68 crore), insufficient disallowance under Section 14A concerning exempt income, and Improper depreciation claim on land (₹2.85 crore).

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The Tribunal upheld the PCIT’s order on the issue of excess deduction under Section 35CCC. During assessment proceedings, the company had offered to restrict its claim to ₹24 crore from the originally claimed ₹32 crore. However, the AO failed to make the corresponding adjustment. Assessee later filed a rectification application under Section 154, but the PCIT chose to treat it as redundant after invoking Section 263.

The Tribunal also noted a factual discrepancy in PCIT’s calculations. While the PCIT pegged the excess deduction at ₹10.68 crore, the actual difference was ₹8.03 crore. The ITAT corrected the figure but upheld the revisionary action on this ground, directing the AO to reassess and disallow only the excess ₹8.03 crore.

The Tribunal sided with the assessee on the Section 14A issue. The PCIT had argued that the AO failed to apply Rule 8D for calculating disallowance and ignored past precedents. However, the ITAT observed that the AO had issued several specific queries and notices related to exempt income and investments, to which the assessee responded in detail, including a breakdown of expenses, personnel costs, and investment averages.

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The ITAT drew reference from established jurisprudence to assert that just because the AO didn’t elaborate on every detail in the assessment order, it doesn’t imply lack of inquiry. Further, the Tribunal dismissed the PCIT’s reliance on CBDT Circular No. 5 of 2014, clarifying that it was not applicable in this case since the assessee had indeed earned exempt income.

Similarly, the ITAT found no merit in the PCIT’s objection to depreciation claimed on an under-construction office premises. The assessee had capitalized the property under “Building” and claimed depreciation accordingly. The PCIT held that since disputes on this issue were ongoing in earlier years, the AO should have disallowed depreciation to maintain consistency.

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The bench consisting of Amarjit Singh (Accountant Member) and Sandeep Singh Karhail, (Judicial Member) noted that the AO had specifically queried the matter, and the assessee had provided detailed explanations supported by agreements, past assessments, and relevant case laws. Hence, the ITAT ruled that the AO had exercised sufficient scrutiny and application of mind. It was concluded that while the deduction under Section 35CCC had indeed been wrongly allowed in excess due to oversight, the AO had conducted adequate inquiry on the other two issues. As a result, the Tribunal upheld the PCIT’s revision only in part, offering partial relief to the assessee.

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