DCIT, CENTRAL CIRCLE-1(4), CHENNAI vs. M/S SHRIRAM PROPERTIES LIMITED, BENGULURU

आदेश / O R D E R

PER MANJUNATHA. G, AM:

The Asst. Director of Income Tax, CPC (AO) processed the return of income, and issued intimation u/s.143(1)(a) of the Income Tax Act, 1961 (in short “the Act"), and determined total income of Rs.4,99,78,000/- by making various additions, including additions towards expenditure of capital in & 5/Chny/2023 :: 3 :: nature u/s.37(1) of the Act, disallowance of penalty u/s.37(1) of the Act, disallowance of contribution to PF u/s.43B of the Act, etc. The assessee challenged the intimation issued u/s.143(1)(a) of the Act, before the First Appellate Authority, and the Ld.CIT(A) for the reasons stated in their appellate order dated 04.11.2022, partly allowed appeal filed by the assessee, where, the Ld.CIT(A) rejected legal ground taken by the assessee in light of proviso to Sec.143(1) of the Act, on the issue of non-issuance of show cause notice as required under said section before issuing intimation u/s.143(1)(a) of the Act. Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us.

quashed. In this regard, he relied upon the decision of ITAT Ahmedabad Bench in the case of Arham Pumps v. DCIT, CPC, Bangalore, reported in 2022 (5) TMI 608 (ITAT Ahmedabad).

such adjustments either in writing or electronic mode. From the proviso provided u/s.143(1)(a) of the Act, it is abundantly clear that before issuing intimation u/s.143(1) of the Act, the AO should issue show cause notice on proposed adjustment to total income. Unless, the AO communicates to the assessee on proposed adjustment as per the provisions of Sec.143(1)(a) of the Act, intimation issued u/s.143(1) of the Act, is unlawful, and thus, additions proposed in the said intimation cannot be sustained. This proposition is supported by the decision of the ITAT Ahmedabad Bench in the case of Araham Pumps (supra), where the Tribunal after considering relevant provisions to sec.143(1)(a) of the Act, and proviso, provided therein held as under:

9. We also observe that the Ld. NAFC has not looked into this fundamental principle of "audi alterm partem", which has not been provided to the assessee as per the 1st proviso of section 143(1) of the Act, but proceeded with the case on merits and & 5/Chny/2023 :: 6 ::

also confirmed the addition made by the CPC. The Ld. NAFC is thus erred in conducting the faceless appeal proceedings in a more mechanical manner without application of mind. We therefore hereby quash the intimation issued by the CPC and allow the appeal filed by the assessee. 7. In this case, there is no dispute whatsoever with regard to the fact that the AO has not issued a communication to the assessee as required under first proviso to sec.143(1)(a) of the Act, before making adjustment to total income u/s.143(1) of the Act. Further, when the Bench directed the Ld.DR present for the Revenue to verify the records and ascertain whether the AO has issued mandatory communication proposing the adjustment before issuing intimation u/s.143(1) of the Act, for which, the Ld.DR vide his written submissions dated 02.06.2023 stated that the details of communication proposing the adjustment are not available for extraction as the CPC-2.0 Project was in transition phase for AY 2020-21. From the above, it is clear that the details of communication issued by the AO as per the first proviso to Sec.143(1)(a) of the Act, is not available with the AO.

Therefore, we are of the considered view that intimation issued u/s.143(1) of the Act, with various adjustments to total income cannot be sustained, and thus, the intimation issued u/s.143(1)(a) of the Act dated 11.10.2021 is held to be unsustainable in law, and thus, we direct the AO to delete additions made towards disallowance of various expenses in the said intimation.

8. The assessee has challenged the order of the Ld.CIT(A) on the issue of disallowance of various expenses. Since, the intimation issued u/s.143(1)(a) of the Act, is held to be invalid/unsustainable under the law, & 5/Chny/2023 :: 7 ::

consequent additions made by the AO towards disallowance of various expenses becomes academic in nature, and thus, grounds raised by the assessee are dismissed as infructuous.

2.1. The learned CIT(A) erred in directing the AO to adopt the tax rate of 25% to the assessee company, without appreciating the fact that the gross receipts of the assess company for the F.Y. 2016-17 was more than 250 crores as such the assessee is not eligible for any concessional tax rate of 25%

2.2 The Id. CIT(A) erred in holding that the turnover of the assessee company was less than 250 crores for the F.Y.2016-17, without appreciating that the assessees' business turnover and other income turnover for the F.Y. 2016-17 was to the tune of Rs.173.30 crores and Rs.235.51 respectively and therefore the total turnover/gross receipts was more than 250 crores.

2.3 The Ld. CIT(A) erred in assuming that, only the business receipts are to be considered for the purpose of "rates of tax" whereas Part 1 to chapter II of Finance Act 2019, specifies "total turnover" or "Gross receipts" shall not exceed 250 crores for the purpose of availing of concessional tax rates, and in this case the gross receipts had exceeded 250 crores, for the F.Y. 2016-17 and therefore the assessee is not eligible for the concessional taxation of 25%.

3. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored.

previous year, then, 30% rate of tax is applicable. The assessee has computed tax liability by applying rate of tax @25% on the ground that its turnover / gross receipts from business for AY 2017-18 is less than Rs.250 Crs. The AO computed tax liability of the assessee by applying rate of tax @30% on the ground that gross receipts/turnover of the assessee for AY 2017-18 was more than Rs.250 Crs. The Ld.CIT(A) after considering relevant details filed by the assessee, including financial statements for AY 2017-18 observed that if you exclude other income, gross turnover/gross receipts from the business of the assessee for AY 2017-18, was less than at Rs.250 Crs., and thus, the assessee has rightly adopted concessional rate of tax @25%. Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us.

11.1 The CIT-DR referring to financial statements of the assessee for AY 2017-18 submits that as per declared financial results, the turnover of the assessee was more than Rs.250 Crs., which is evident from financial statement of the assessee’s business turnover was to the tune of Rs.173.30 Crs. and further, a sum of Rs.235.51 Crs. was reported under ‘other income’. He further referring to the provisions of Part-1, Chapter-2 of Finance Act, 2019 submitted that for the purpose of applying 25% concessional rate of tax, the Act specifies total turnover or gross receipts shall not exceed Rs.250 Crs. In this case, if you consider gross receipts of the assessee, including other income, it exceeds Rs.250 Crs., and thus, the & 5/Chny/2023 :: 9 :: assessee ought to have paid 30% tax. The Ld.CIT(A) without appreciating the relevant facts, directed the AO to adopt 25% concessional rate of tax.

11.2 The Ld.Counsel for the assessee, on the other hand, supporting the order of the Ld.CIT(A) submitted that there is no dispute with regard to the fact that the Revenue from operations for AY 2017-18 was at Rs.173.30 Crs. It was also not in dispute that the assessee has reported ‘other income’ of Rs.235.50 Crs. and said, other income includes income from guarantee commission, fair value gain on financial instruments, and gain on extinguishment of financial liability, and if you exclude these three items from other income, then, the total receipts as considered by the AO, including other income does not exceed Rs.250 Crs., and thus, the question of turnover being in excess of Rs.250 Crs. for applying higher rate of tax does not arise. He further submitted that other income reported by the assessee cannot be considered as turnover or gross receipts from the business, because, those items of income are not directly linked to business activity of the assessee. Further, three items of other income was arises for the year under consideration is an account of re-statement of existing liabilities in the books of accounts for migrating to IND-AS standards and the same are notional in nature. Therefore, those items of income cannot be considered for the purpose of computing gross turnover/gross receipts.

Therefore, he submitted that the Ld.CIT(A) has rightly excluded other income for the purpose of computing gross turnover/ gross receipts and & 5/Chny/2023 :: 10 :: direct the AO to apply concessional rate of tax @25% and their orders should be upheld.

11.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that as per audited financials of the assessee for AY 2017-18, the assessee has reported gross Revenue from operations at Rs.173.30 Crs. which is less than the prescribed limit for applying concessional rate of tax. Further, other income reported by the assessee does not constitutes gross turnover/ gross receipts generated from main business activity of the assessee. Therefore, for the purpose of computing turnover, those items of other income cannot be considered. We further noted that out of other income, three major items i.e. income from guarantee commission, fair value gain on financial instrument and gain on extinguishment of financial liability are notional incomes credited to P &L A/c for re-statement of existing income and liabilities while adopting IND- AS standards, and thus, same cannot be considered as gross receipts or other income generated from business. If you exclude those three items, then the gross turnover/ gross receipts of the assessee, including other income does not exceed Rs.250 Crs. Therefore, we are of the considered view that the assessee has rightly computed tax liability by adopting 25% concessional rate of tax. The Ld.CIT(A) after considering relevant facts has rightly directed the AO to adopt concessional rate of tax, and thus, we are & 5/Chny/2023 :: 11 :: inclined to uphold the findings of the Ld.CIT(A), and dismiss the appeal filed by the Revenue.