Income Tax Act | Revisional Power U/S 263 Cannot Be Invoked When AO Allows Deduction U/S 32AC After Proper Inquiry: Kerala High Court

The Kerala High Court stated that revisional power under Section 263 of the Income Tax Act cannot be invoked when Assessing Officer (AO) allowed deduction under Section 32AC after proper inquiry. Justices A. Muhamed Mustaque and Harisankar V. Menon opined that merely for the reason that AO extended the deduction claimed after carrying out investigations, the exercise of the power under Section 263 of the Act is not required. At worst, the revisional authority can correct the error, if any, committed by the AO, by holding that the extension of the benefit of deduction was erroneous, with reference to the purchase of the assets during the previous years. The assessee/appellant had claimed the benefits under Section 32AC of the Income Tax Act. Section 32AC provides for deductions with respect to investments made by a company in “new plant or machinery” after 31.03.2013 but before 01.04.2015, provided the aggregate amount of actual cost of new assets exceeding Rs. 100 Crores, in the manner prescribed thereunder. The assessee contends that the Assessing Officer ('AO') had raised various queries as regards the claims made in the returns, and one such query was the eligibility for deduction under Section 32AC of the Act. The assessee had clarified the claim and based on those clarifications; the Assessing Officer allowed the Section 32AC deduction. The respondent/Principal Commissioner of Income Tax later sought to invoke the suo motu revisional power under Section 263 of the Act, since, according to him, a major portion of the assets purchased were prior to 01.04.2013, which was omitted to be noticed by the AO while allowing the claim made by the assessee. Rejecting the explanations offered by the assessee, the respondent/Principal Commissioner of Income Tax issued an order, concluding that the AO had incorrectly assumed the facts of the case and had incorrectly applied the law to the case at hand. The bench agreed with the assessee that the suo motu steps have been initiated, as noticed earlier, since a major portion of the purchases entitling the deduction were made prior to the cut-off date (01.04.2013). However, the proviso to Section 32AC(1A) of the Act provided for extension of the benefits with reference to the year in which the “installation” has taken place. The authority could also consider the issue as to the applicability of the proviso to Section 32AC(1A), introduced by the Finance Act, 2016, with only a prospective effect, as not applicable for the year under assessment, added the bench. The Tribunal went wrong in confirming the exercise of the suo motu revisional power in the case at hand, held the bench. In view of the above, the bench allowed the appeal and remitted the matter to the revisional authority for de novo disposal. Case Title: M/s Apollo Tyres Ltd. v. The Principal Commissioner of Income Tax Case Number: ITA NO. 63 OF 2024Citation: 2025 LiveLaw (Ker) 712 Counsel for Appellant/Assessee: Abraham Joseph Markos Counsel for Respondent/Department: Jose Joseph Click Here To Read/Download The Order

Income Tax Act | Revisional Power U/S 263 Cannot Be Invoked When AO Allows Deduction U/S 32AC After Proper Inquiry: Kerala High Court

Mehak Dhiman

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