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2018 (12) TMI 1326 - AT - Income TaxDisallowance of ad-hoc provision of salary - failure to make a protective claim in subsequent year - Held that:- A claim wrongly made by an Assessee in an earlier year cannot be allowed in that year, merely because the Assessee did not make the claim correctly in a subsequent year. During the pendency of a dispute as to the year in which a claim of the Assessee is to be allowed; a prudent Assessee can make the claim in other year(s), on protective basis, subject to final outcome of such a dispute, by explaining such a protective claim in other year(s). Assessee, having failed to make protective claim in subsequent year(s) in which it was lawfully allowable, cannot force the claim in an earlier year in which it was not lawfully allowable. However, the Assessee is free to exercise its legal options in respect of the subsequent year(s) in which the claim was lawfully allowable; such as U/s 264 of I.T. ACT with particular reference to Proviso to Section 264(3) - thus sustaining the disallowance on account of ad hoc provision for pay revision - Decided against assessee. Addition of denial of change in the accounting policy - Held that:- The Assessee is a company incorporated under the Companies Act, 1956 and follows mercantile system of accounting. An Assessee company registered under the Companies Act, 1956 is required to maintain accounts in accordance with provisions of The Companies Act, 1956. However, the profits computed in this manner need not necessarily be the same as Total Income for the purposes of I.T. Act. The computation of Total Income for the purposes of Income Tax Act requires giving effect to statutory provisions under I.T. Act, by making necessary adjustments/modifications/alterations/variations to profits compounded in accordance with provisions of the Companies Act, 1956. In view of this, the Assessee was in clear error of law by not adding back the aforesaid amount of ₹ 1.28 crores in the computation of Total Income for the purposes of I.T. Act. This error of law is further aggravated by the error of fact, in that the change of accounting policy was based on faulty premise (i.e. error of fact) that there was no financial impact. Thus a clear errors of law and fact on the part of the Assessee, we uphold the addition of aforesaid amount - Decided against assessee. Revision u/s 263 - Disallowance u/s 14A - Held that:- CIT(A) has mentioned in his impugned order dated 28.8.2014, in computing disallowance U/s 14A of I.T. Act, the AO should have carried out necessary verifications regarding the nature of investments as directed by CIT in the order U/s 263 of I.T. Act; which the AO failed to do. However, CIT(A) also not only himself failed to carry out this verification; but also, he failed to cause this verification to be done by the AO. It is well-settled that powers of CIT(A) are co-terminus with powers of the AO. Useful reference may be made to case of CIT v/s Kanpur Coal Syndicate (1964 (4) TMI 18 - SUPREME COURT) as held that AAC has plenary powers in disposing off an appeal; that the scope of his power is co-terminus with that of the ITO, that he can do what the ITO can do and also direct him to do what he failed to do. CIT(A), having noticed lack of proper verification at the end of the AO, should have ensured that effective verification was carried out. CIT(A) could have made the verification himself, or he could have caused the verification by way of further inquiry in exercise of powers U/s 250(4) of I.T. Act - we are of the view that the lower authorities, the AO as well as the Ld. CIT(A), have not considered the issue regarding disallowance U/s 14A of I.T. Act properly and the matter requires fresh consideration at the level of the AO. Therefore, we restore the disputed issue regarding disallowance U/s 14A of I.T. Act to the file of the AO for fresh order
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