INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Provision for expenses disallowable or it is provision for contingent liability - Ex-parte order -

Assessee was engaged in the business of builders and land developers. Assessment was completed by ITO in the order passed under section 143(3) accepting the returned income. It was a matter of record that case was picked up for assessment under limited scrutiny for the purpose of verifying the two items, i.e., Stock Valuation and Income from Real Estate Business. CIT issued a show-cause Notice under section 263 to explain as to why the provision for expenses should not be disallowed, as it is a contingent liability. Consequently, CIT had proceeded to pass an ex-parte order wherein he directed AO to examine the claim for allowance of provision for expenses as the same was not allowable expenditure. Held: Finding of CIT that provision for expenses is contingent liability was not based on any material, it was mere ipse dixit. Order did not contain an allegation by CIT that AO had not enquired into this issue during the course of assessment proceedings. Thus, it was clear that it was not even case of CIT that AO had not enquired into this case. Therefore, case even did not fall within ambit of Explanation 2 to sub-section (1) of section 263 inserted by Finance Act, 2015 with effective from 1-6-2015. Hence, it could not be said that the assessment order was erroneous causing consequence prejudice to the interests of the revenue.

Followed:Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC), CIT v. George Williamson (Assam) Ltd. (2001) 250 ITR 747 (Gau) : 2001 TaxPub(DT) 1438 (Gau-HC), CIT v. Sakthi Charities (2000) 244 ITR 226 (Mad-HC) : 2000 TaxPub(DT) 1248 (Mad-HC) and Rayon Silk Mills v. CIT (1996) 221 ITR 155 (Guj-HC) : 1996 TaxPub(DT) 598 (Guj-HC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16

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