By TIOL News Service

NEW DELHI, JAN 30, 2018: THE issue before the Bench is - Whether power of revision can be exercised u/s 263 where a particular issue is not examined in its entirety by the AO, during original assessment proceedings. And the HC verdict is YES.

Facts of the case

The Assessee-company, engaged in distribution of electricity, filed returns for the relevant AY. On assessment by the special auditor, several issues were noticed in the returns filed, such as - i)reconciliation of fixed assets and depreciation, ii) arm's length nature of transactions entered into with related parties, and iii) effect of non-compliance with TDS provisions. Thereupon, the total income of the Assessee was determined, with disallowance being made, of depreciation of an amount capitalized for re-installing fixed assets, disallowance u/s 40(a)(ia), disallowance of an amount being related party transactions. Further, an addition was made of an amount of arm's length price of transactions with related party. On appeal, the CIT(A) settled the issue of disallowance of depreciation and disallowance of related party transactions, in favor of the Assessee. The last issue was settled partly in favor of the Assessee. Subsequently, the Commissioner issued SCN u/s 263, on grounds that there had been a variation in the cost of the fixed assets, a facet which was allegedly not considered in the earlier proceedings. Thereupon, the CIT(A) issued a fresh order, deeming the original order to be erroneous & prejudicial to Revenue's interests. The CIT(A) further directed the AO to reconsider the issues. Later, the Tribunal too upheld the same, considering that the variation in cost of assets was not considered. The Tribunal further directed that a fresh order be passed w.r.t. the disallowance of depreciation and disallowance of related party transactions. Hence the Assessee's appeal.

On hearing the matter, the High Court held that,

++ as far as the first aspect with respect to exercise of power u/s 263 is concerned, the issue stands concluded, in the light of the amendment with effect from 1989, by insertion of Explanation (c) to Section 263 (1). The non-consideration of the larger claim for Rs. 298.93 crores as depreciation and the consideration of only a part of it (Rs. 644,81,091) by the AO, who did not go into the issue with respect to the whole amount, was an error, that could be corrected under Section 263. The judgment in Commissioner of Income Tax v Aruba Mills is decisive, in that the provision of Section 263 (1) Explanation (c) was introduced to cater to precisely this kind of mischief.

++ on the aspect of SCN, i.e., the second and third questions framed, the court is of the opinion that the ruling in Commissioner of Income tax v Amitabh Bacchan is decisive; it upholds the power of the Commissioner to consider all aspects which were the subject matter of the AO's order, if in his opinion, they are erroneous, despite the assessee's appeal on that or some other aspect. Considered relevant findings in the judgment.

++ hence the revisional order, to the extent that it did not provide any pre-decisional opportunity to address the issues it dealt with, could not be sustained; the ITAT has granted relief of a limited nature on that score. However, the court did not agree that those issues were incapable of consideration as they were gone into by the AO. Accordingly, the CIT, in exercise of his power under Section 263 will proceed to consider the assessee's submissions only on those two aspects, before making his order. All questions framed are, therefore, answered in the negative, against the assessee.

(See 2018-TIOL-172-HC-DEL-IT)