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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGH & SHRI MANJUNATHA. G
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Chennai-3, passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), dated 19.03.2022 and pertains to assessment year 2017-18.
:-2-: ITA. No: 173/Chny/2023 2. The assessee has raised the following grounds of appeal:
1. The order is against the law, erroneous and beyond the jurisdiction of the Ld. PCIT.
2. The AO in this assessment order has disallowed on payments made to M/s SSG Technologies LLC, UAE and when the said disallowance is subject matter of appeal before the CIT(A), the PCIT cannot exercise jurisdiction under section 263 of the Act Therefore the order passed by the PCIT u/s 263 of the Act to set aside the assessment on the same issue which is also pending before the CIT(A) for adjudication and thus is in violation of provisions of section 263(1) explanation 1(c) of the Act. Therefore, the PCIT fell into an error in passing the impugned order.
3. Case laws relied upon: Smt Renuka Philip vs. ITO [2018] 409 ITR 567 (Mad) CIT vs. Varn Resorts and Hotels Pvt. Ltd., [2019] 111 taxmann 62 (Allahabad) CIT vs. Varn Resorts & Hotels Pvt. Ltd. No. 107 of 2015 (HC Allahabad) For the above reasons and such other grounds that may be adduced at the time of hearing, the appellant prays that the order passed by the Ld.PCIT be deleted and render justice.”
3. The brief facts of the case are that, the appellant is a Private Limited Company and engaged in the business of providing software solutions. For the assessment year 2017- 18, the appellant filed its return of income on 07.01.2018, declaring total income of Rs. 40,40,630/-. The assessee :-3-: ITA. No: 173/Chny/2023 company has entered into an agreement with M/s. SSG Technologies LLC, Dubai, to use the latter’s facility of Dubai by the employees of the assessee company for providing services to the Dubai local clients. As per the agreement, the assessee company has to share 25% of the project value with M/s. SSG Technologies LLC, Dubai. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has not deducted TDS on income retained by M/s. SSG Technologies LLC, Dubai, on the ground that it did not make any payment and instead the latter has made payment after deducting 25% share as per the agreement. The Assessing Officer, on the basis of various evidences filed by the assessee and also by following his predecessor assessment order for assessment year 2016-17, which has been upheld by the ld. CIT(A), disallowed a sum of Rs. 1,17,14,543/-, being 25% of the total contract receipts u/s. 40(a)(ia) of the Act, for non- deduction of TDS u/s. 195 of the Act. The Assessing Officer, while completing the assessment had also observed that the assessee has incurred various expenditure amounting to Rs. 2,13,11,528/-, which are in the nature of reimbursement of expenses.
:-4-: ITA. No: 173/Chny/2023 4. The case has been subsequently taken up for revision proceedings by the PCIT, Chennai-3, and show cause notice u/s. 263 of the Act dated 15.02.2022, was issued and called upon the assessee to explain as to why the assessment order passed by the Assessing Officer u/s. 143(3) of the Act, dated 26.11.2019 should not be revised. In response, the assessee submitted that the assessment order passed by the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue, on the issue of disallowance of expenses, because the Assessing Officer has verified the issue of various expenditure debited into profit and loss account and discussed in the body of the assessment order and thus, on very same issue the PCIT cannot invoke his jurisdiction and revise the assessment order u/s. 263 of the Act.
The PCIT, after considering relevant submissions of the assessee and also taken note of various facts opined that, the Assessing Officer has not verified in detail whether expenses claimed are allowable as per the agreement entered into between the assessee and M/s. SSG Technologies LLC, Dubai. Therefore, set aside the assessment order passed by the Assessing Officer, with a direction to verify the allowability of :-5-: ITA. No: 173/Chny/2023 these expenses in light of agreement between the parties. Aggrieved by the PCIT order, the assessee is in appeal before us.
The Ld. Counsel for the assessee, submitted that the ld. PCIT is erred in revising the assessment order in terms of section 263 of the Act, even though he has failed to make out a case of erroneous order passed by the Assessing Officer, which is prejudicial to the interest of the revenue, which is evident from the findings of the PCIT that, the assessment order has been set aside for verification of allowability of various expenses debited into profit & loss account. She further submitted that, the assessee has challenged disallowance of 25% on contractual receipts made by the Assessing Officer before the CIT(A) and appeal filed by the assessee is pending for adjudication. Since, the issue is subject matter on appeal before the CIT(A), there is no scope for the PCIT to revise the assessment order, on the ground that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue.
:-6-: ITA. No: 173/Chny/2023 7. The ld. CIT-DR, Shri. Ravi Babu, CIT, supporting the order of the PCIT submitted that, the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, because the Assessing Officer has failed to verify the issue of various expenses debited into profit & loss account, in light of agreement between the parties which rendered the assessment order to be erroneous and prejudicial to the interest of the revenue. The PCIT, after considering relevant facts has rightly set aside the assessment order passed by the Assessing Officer and their order should be upheld. In this regard, he filed detailed written submission on the issue, which has been reproduced as under: In the instant case, the appeal has been filed against the order of the learned Pr.CIT, Chennai-3, Chennai under section 263 of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') dated 19/3/2022. The appellant has taken the following ground of appeal: "The AO in this assessment order has disallowed payments made to Mls.SSG Technologies LLC, UAE and when the said disallowance is the subject matter of appeal before the CIT(A), the PCIT cannot exercise jurisdiction under section 263 of the Act. Therefore, the order passed by the PCIT u/s.263 of the Act to set aside the assessment on the same issue which is also pending before the CIT(A) for adjudication and thus is in violation of provisions of section 263(1) Explanation 1(c) of the Act. Therefore, the PCIT fell into an error in passing the impugned order."
:-7-: ITA. No: 173/Chny/2023 2. Briefly stated, the facts of the case are that the AO in his assessment order dated 26/11/2019 has disallowed a sum of Rs.1,17,14,543/- u/s.40(a)(i) of the Act, being 25% of the total contractual receipts of Rs.4,68,58, 173/- relates to SSG Technologies, Dubai, for want of deduction of tax at source u/s.195 of the Income Tax Act, 1961. 2.1 The assessee had filed an appeal against this assessment order. Meanwhile, the learned CIT in his order u/s.263 of the Act observed that apart from the above payment, an additional expenditure of rs.2,13,11,523- has been debited to the P&L account towards reimbursement made to the non-resident Dubai Company, in respect of actual commission paid for infrastructure facility in Dubai. The learned PCIT after giving an opportunity of being heard to the assessee has observed that the Assessing Officer has not verified in detail whether the expenses claimed are allowable as per the agreement entered between the assessee company and M/s.SSG Technologies LLC Dubai. The appellant has taken the ground that the order u/s.263 of the Act is without jurisdiction in as much as the same issue is pending before the CIT(A).
The ground taken by the appellant is not tenable for the following reasons: The AO has made the addition only on a portion of a sum to the non-resident but failed to examine the larger sum requiring deduction of tax at source. Obviously, the later payment which has been under consideration in the order u/s.263 of the Act was totally missed out by the AO. Therefore, the order of the learned PCIT is well within the jurisdiction and in consonance with clause(c) of Explanation 1 to Sec.263(1) of the Act. In this regard, reliance is placed on the order of the Hon'ble High Court of Delhi in the case of BSES Rajdhani Power Ltd. reported in 399 ITR 228 (Delhi)(8/11/2017). In the said ruling, vide para 15, it is observed that "with respect to the exercise of power under section 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 by the assessing :-8-: ITA. No: 173/Chny/2023 officer who did not go into the issue with respect to the whole amount, was an error, that could be corrected under section 263. The above case is pari materia with the current case. In the above ruling, a reference has also been made to the judgment of the Hon'ble Supreme Court in CIT v Shri Arbuda Mills Ltd. Reported in 231 ITR 50(SC) which has confirmed the order of the Hon'ble High Court. The appellant has relied upon the following case laws: (i) Smt.Renuka Philip vs. ITO (2018) 409 ITR 567 (Mad.) (ii) CIT vs Varn Resorts & Hotels Pvt. Ltd. No.107 of 2015 (HC Allahabad) In the case of Smt.Renuka Philip, the Hon'ble jurisdictional High Court of Madras, the substantial question of law framed by the Hon'ble jurisdictional High Court was with reference to deductibility or otherwise of the claim of the assessee u/s.54 vis-a-vis 54F of the Act. Both factually and legally that case did not involve a larger amount of sum missed out by the AO to make enquiry about. In the case of Varn Resorts and Hotels P. Ltd. reported in 418 ITR 723, there is a categorical finding of the Hon Court vide para 27 of the order that the Tribunal had recorded a specific finding of fact that the assessing authority had examined each and every aspect of the case on which the remand order hinges, as such the remand order was not sustainable in the eyes of law. Obviously, this case is also, both factually and legally, different from the case under appeal.
5. In view of the above, it is prayed that the order of the learned PCIT u/s.263 of the Act may be sustained in view of the specific legal and factual issues involved.”
We have heard both the parties, perused materials available on record and gone through orders of the authorities :-9-: ITA. No: 173/Chny/2023 below. Admittedly, PCIT set aside the assessment order by exercising his powers conferred u/s. 263 of the Act, on the ground that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. According to the PCIT, the Assessing Officer has failed to verify any details, whether the expenses claimed are allowable as per agreement entered into between assessee company and M/s. SSG Technologies LLC, Dubai. Therefore, the PCIT opined that, further verification is required to ascertain allowability of expenditure debited into profit & loss account. Except this, the PCIT has not made out any case of erroneous order passed by the Assessing Officer, which caused prejudice to the interest of the revenue, on the issue of various expenses debited into profit & loss account, which is evident from the order passed by the PCIT, where there is no discussion as to how expenditure debited into profit & loss account is not allowable as deduction. Further, the Assessing Officer has considered expenditure debited into profit & loss account amounting to Rs. 2,13,11,528/-, and discussed in the body of the assessment order and held that said expenditure are in the nature of reimbursement of expenses as per the agreement between the assessee and M/s. SSG Technologies :-10-: ITA. No: 173/Chny/2023 LLC, Dubai. Further, the Assessing Officer has made disallowances towards similar expenditure debited into profit & loss account, in light of agreement between the parties and the assessee has challenged disallowance of expenditure before the CIT(A). The ld. CIT(A), in their order for the assessment year 2016-17, had considered the issue and held that those expenditure are in the nature of reimbursement of expenses and is allowable and thus, directed the Assessing Officer to delete disallowance of expenditure u/s. 40(a)(ia) of the Act. The Assessing Officer, after considering relevant details and also by following the CIT(A) order for the earlier assessment year has verified the nature of expenditure and its allowability in light of agreement between the parties and has not made no disallowances. Therefore, in our considered view, invocation of jurisdiction by the PCIT on the very same issue of disallowance of expenditure is incorrect, because the PCIT had failed to make out a case as to how said expenditure is not allowable with reasons and further, the Assessing Officer has already verified and allowed said expenditure, which is supported by the order of the CIT(A) for assessment year 2016-17. Thus, in our considered view, the assessment order passed by the Assessing Officer u/s. 143(3) of the Act dated :-11-: ITA. No: 173/Chny/2023 26.11.2019, is neither erroneous nor prejudicial to the interests of the revenue. The PCIT, without appreciating relevant facts simply set aside the assessment order passed by the Assessing Officer. Thus, we quash order passed by the PCIT u/s. 263 of the Act.