SARACA LABORATORIES LIMITED,HYDERABAD vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-3(1), HYDERABAD

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ITA 1166/HYD/2019Status: DisposedITAT Hyderabad23 February 2021AY 2015-167 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO's order under Section 154 was illegal and void as it went beyond the scope of limited scrutiny and attempted to review the assessment. Rectification powers cannot be used to cure lapses in the original assessment.

What were the facts?

The Assessing Officer (AO) made an addition of Rs. 7,50,700/- towards CSR expenses under Section 154, stating the expenses were not wholly and exclusively for business purposes. The assessee argued that the original assessment under Section 143(3) had accepted the returned income and the rectification was beyond the AO's jurisdiction.

What were the issues?

Whether an addition made under Section 154 is valid when the original assessment under Section 143(3) accepted the returned income, and if the rectification order is beyond the AO's jurisdiction.

Which sections of the Income-tax Act were involved?

Section 154,Section 143(3),Section 37(1)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”: HYDERABAD

Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU

For Appellant: Shri P. Murali Mohana Rao
For Respondent: Shri Rohit Muzumdar
Hearing: 16/02/2021Pronounced: 23/02/2021

O R D E R PER BENCH: This appeal filed by the assessee is directed against CIT(A) – 3, Hyderabad’s order dated 17/05/2019 for AY 2015-16 on the following grounds of appeal: “1. The Ld. CIT (A) erred in dismissing the appeal.

2. The order of the Ld. CIT(A) is erroneous both on facts and in law.

:- 2 -: Saraca Laboratories Ltd., Hyd.

3. The Ld. CIT(A) ought to have appreciated that the issue involved is a debatable issue and that the order passed u/s 154 of the Act dated 16.05.2018 is void abinitio.

4. The Ld. CIT (A) has erred in holding that it does not seem to be a debatable issue on the ground that the appellant has not filed the relevant details to justify the CSR expenses with the nature of assessee's business. 5. The Ld. CIT (A) has erred in holding that the findings of the Assessing Officer in the order u/s 154 of the Act that there is nothing on record to demonstrate that the expenses of Rs.7,50,500/ have been laid out wholly and exclusively for the purpose of business, is appropriate. 6. The Ld. CIT(A) ought to have appreciated that the claim for Rs.7,50,500/- towards voluntary CSR expenses had been allowed by the Assessing Offcer in the original assessment completed u/s 143(3) of the Act dated 14.09.2017. 7. The Ld. CIT(A) ought to have appreciated that the power of rectification u/s 154 of the Act cannot be used to cure the lapses if any, in the assessment completed u(s 143(3) of the Act. 8. The Ld. CIT(A) ought to have appreciated that review of an assessment in the guise of rectification is illegal. 9. The Ld. CIT (A) ought to have appreciated that a mistake apparent from record must be an obvious mistake and not something which can be established by a long drawn process of a reasoning or examining arguments on points. 10. the appellant may add or alter or amend or modify or substitute or delete and or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.

:- 3 -: Saraca Laboratories Ltd., Hyd.

2. Further the assessee has also filed a petition for admission of additional grounds, which are as under: “11. As per the ratio laid down by the Honourable Supreme Court of India in the case of National Thermal power Co. Ltd v. CIT (1998) 229 ITR 383 (SC), the Hon'ble ITAT has jurisdiction to examine the question of law which has been taken before the ITAT for the first time though not taken before the first appellate authority. 12. The Ld. CIT (A) erred in upholding the order of A.O passed ul s 154 without appreciating the fact that the CSR Expenses of Rs.7,50,700 is no where part of the limited scrutiny notice issued. 13. The Id. CIT (A) ought to have appreciated the fact that the action of AO in disallowing CSR Expenses of Rs, 7,50,700 in rectification proceedings u/s 154 is beyond the scope of Limited Scrutiny and this entire action is bad in law, nullity and void and deserve to be quashed and set aside. 14. The Appellant may add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.” 2.2 As the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited Vs. CIT 229 ITR 383 (SC), we admit the said additional grounds of assessee.

:- 4 -: Saraca Laboratories Ltd., Hyd.

3.

Brief facts of the case are that the assessee company e-filed its return of income on 30/10/2015 declaring total income of Rs. 24,28,91,170/-. Subsequently, the case was selected for limited scrutiny and statutory notices were issued to the assessee. The AO accepted the returned income declared by the assessee in the return of income filed. Thereafter, the AO passed an order u/s 154 of the Act on 16/05/2018 making an addition of Rs. 7,50,700/- (included in cash payments also), which the assessee had debited towards CSR expenses by holding that there is nothing on record to demonstrate that the said expense is laid out wholly and exclusively for the purpose of business and, therefore, the same is not allowed as per the provisions of section 37(1) of the Act.

4.

When the assessee carried the matter in appeal before the CIT(A), the CIT(A) confirmed the order of AO. Still aggrieved, the assessee is in appeal before the ITAT.

:- 5 -: Saraca Laboratories Ltd., Hyd.

5.

Before us, the ld. AR of the assessee submitted that originally the case was selected for limited scrutiny, in which the AO has accepted the income returned by the assessee and, therefore, the order passed u/s 154 is incorrect as per law. Moreover, the AO has not converted the limited scrutiny into full/complete scrutiny. He, therefore, contended that the order passed by the AO u/s 154 of the Act is beyond his jurisdiction and not as per law.

6.

The ld. DR, on the other hand, relied on the orders of revenue authorities.

7.

After hearing both the parties and perusing the material on record as well as going through the orders of revenue authorities, we observe that the case was selected for limited scrutiny vide notice u/s 143(2) of the Act issued on 07/04/2016, a copy which is placed at page no.1 of the paper book and the AO has completed the assessment on 14/09/2017 by accepting the income returned by the assesssee. Later on, the AO passed an order u/s 154 by :- 6 -: Saraca Laboratories Ltd., Hyd.

making an addition of Rs. 7,50,700/- which was incurred by the assessee towards CSR on the ground that there is nothing on record to demonstrate that the said expense is laid out wholly and exclusively for the purpose of business and, therefore, the same is not allowed as per the provisions of section 37(1) of the Act. In this regard we find substance in the submissions of ld. AR that once the case was selected for limited scrutiny in which the returned income was accepted by the AO, passing an order under section 154 by making an addition on the ground that the same is a mistake apparent on record, is illegal and void beyond his jurisdiction. For this proposition, the ld. AR relied on the following decisions: 1. Late Smt. Gurbachan Kaur Vs. DCIT,

2.

M/s JDC Traders Pvt. Ltd., Vs. DCIT, ITA No. 5886/De;/2015 3. CIT Vs. Hero Cycles (P) Ltd., [1997] 94 Taxman 271(SC) 4. TS Balaram Vs. Volkart Brothers, [1971] 82 ITR 50(SC) 5. DCIT Vs. SBI, Hyderabad, ITA No. 1386/Hyd/2015 6. Madhucon Sugar & Power Industries Ltd., Vs. ACIT, ITA No. 248/Hyd/2019

:- 7 -: Saraca Laboratories Ltd., Hyd.

Respectfully following the ratio laid down in the aforesaid decisions and considering the facts of the case, we set aside the order of CIT(A) and quash the order passed by the AO u/s 154 of the Act. Accordingly, the grounds raised by the assessee are allowed.

8. In the result, appeal of the assessee is allowed. Pronounced in the open court on 23rd February, 2021.

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