2022 (11) TMI 625 - AT - Income Tax
Revision u/s 263 by CIT - Deduction of expenses from additional income (on money) declared u/s 69A - service tax which is related to “on money” and remuneration paid to partners - HELD THAT:- As decided in MASKAR GENERAL HOSPITAL [2011 (8) TMI 1144 - GUJARAT HIGH COURT] additional income, i.e. on money received by assessee is from business, therefore the service tax which relates to “on-money” should be allowed as deduction and partners’ remuneration should also be allowed as deduction. We note that during the assessment proceedings, the AO issued notice to the assessee asking the assessee to justify service tax and partners’ remuneration. The said notice of AO is placed at paper book page no.16. In response to the show-cause notice of the AO, the assessee submitted its reply to the Assessing Officer which is placed - Thus, we note that Assessing Officer has conducted inquiry on the issues raised by Ld. PCIT in his order under section 263 - AO also applied his mind and took possible view, thus order passed by the AO is neither erroneous nor prejudicial to the interest of revenue.
The order of the AO can be held to be erroneous order, that is (i) if the AO’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)AO’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the AO can be termed as erroneous order.
Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue.
Hon’ble Supreme Court in the case of Malabar Industries [2000 (2) TMI 10 - SUPREME COURT] held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the AO is unsustainable in law”.
Since the order of the AO cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is “null” in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 - Appeal of the assessee is allowed.