MAHIM PATRAN P. LTD,NEW DELHI vs. PR. CIT -2, AGRA

In the Income-Tax Appellate Tribunal, Agra Bench, Agra

Before : Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member

ITA Nos. 195 & 196/Agr/2015 Assessment Years: 2010-11 & 2011-12

Mahim Patran Private Limited, vs. The Pr. Commissioner, Kripa/Ritambhara Building, Of Income-tax – 2, Tribhuvan Coplex, Ishwar Nagar, Agra. West, New Delhi. PAN-AABCM0886E (Respondent) (Appellant)

Sh. Gaurav Bansal, CA & Appellant by Sh. R.C. Tomar, I.T.P. Respondent by Sh. Sunil Bajpai, CIT/DR

Date of Hearing 19.08.2019 Date of Pronouncement 02.08.2019

ORDER Per Laliet Kumar, J.M.: Present appeals are filed by the assessee being aggrieved from the orders of

the Pr. CIT, Agra dated 30.03.2015 for the assessment years 2010-11 and 2011-12

on the following common grounds :

ITA Nos. 195 & 196/Agr/2015 2

for the assessment years 2010-11 and 2011-12 on 18.03.2013 and 14.02.2014

respectively. At paragraph 5 of the order for A.Y. 2010-11, it was mentioned by the

Assessing Officer as under :

ITA Nos. 195 & 196/Agr/2015 3

receipts have been received in the name of the assessee company as well as in the name of its director Sh. Madhukar Kapoor on behalf of the company. Entire receipt credited in the bank account of Sh. Madhukar Kapoor has been accounted for in the hands of the company. The credit of TDS on such job charges has also not been claimed by the Sh. Madhukar Kapoor. The credit of TDS is partly reflected in form No. 26AS of the company as well as that of Sh. Madhukar Kapoor, It has been submitted that the credit of TDS reflected in form No. 26AS in the case of Sh. Madhukar Kapoor should have been allowed in the hands of the company.

(ii) it has been submitted that the total amount of TDS has not been reflected in form no. 26As of the company and Sh. Maldhukar Kapoor. It has been submitted that due to confidential nature of work, the deduct or has neither mentioned the name of the company nor the PAN of the company in many cases and therefore such job work is not reflecting in their form no. 26AS.

(iii) It has been submitted that the assessee received advances from the universities and TDS has been deducted on such advances. The assessee used to claim credit of entire TDS including the TDS deducted on advances in the year of receipt. The job work in respect of the advances has been done in subsequent year and the system of receiving advances continues. It has been submitted that the total TDS on advances received as on 31.03.2010 is Rs, 7,44,678/- whereas the TDS on advances as on 31.03.2009 was Rs, 6,44,444/-. It has been admitted that legally the credit of advance received should be allowed in subsequent year in which the income is shown.

The assessee has submitted details of job charges, TDS deducted and TAN of the deductor and also submitted copy of TDS certificates.

The assessee was requested to give the name and address of deductors so that necessary verification could be made and his long standing grievance regarding not giving credit of TDS could have been settled. The assessee has however not given such details. In view of this, the assessee is requested to furnish the details for verification. Subject to above, the credit of TDS reflected in form No. 26AS of

ITA Nos. 195 & 196/Agr/2015 4

the assessee concern or in the account of Sh. Madhukar Kapoor shall be allowed subject to the verification that credit of TDS has not been claimed by the Sh. Madhukar Kapoor.

2.1 Similarly in paragraph No. 2 of the order for assessment year 2011-12, it was

mentioned as under :

2 The assessee engaged in the business of Security Printing & Ice Cream Manufacturing. The business of ice cream manufacturing is done m the name of ICES Product since last many years from the factory at A-6. Site-B, UPSIDC Artoni, Agra. The assessee is also engaged in security printing. The assessee has claimed credit of TDS of Rs. 33475G8/-. It has been submitted that out of TDS claimed at Rs. 3347508/-. TOS of Rs. 106492/- is appearing in 26AS of the assessee company and Rs. 1539198/- is appearing m the 26AS of its director Sh. Madhukar Kapur. it has been submitted that remaining amount of TDS Rs. 1701818/- is neither reflected in 26AS of the company nor in 26AS of its director Madhukar Kapur it has been submitted that the TDS of Rs. 1539198/- appearing in 26AS of its director Madhukar Kapur has not been claimed in his return of income as the job work was done by the assessee company and the amount of receipts has also been accounted for in the hands of assessee company. The submission of the assessee that the credit of TDS of Rs. 1539198/- has no! been claimed in the case of Sh. Madhukar Kapur is verified, it is therefore claimed that the credit of TDS appearing in the hands of Sh Madhukar Kapur may be allowed in the case of the assessee company It has been submitted that remaining amount of TDS of Rs. 1701818A is not appearing in the statement 26AS because of non-furnishing/incorrect filing of TDS statement by the deductors. The assessee vide its reply dated 13.01.2014 has given name & address of the deductors. their TAN nos Billing amount, deduction, net jobwork, total TDS, TDS shown in 2GAS of the company and Sh, Madhukar Kapur it has been submitted that the amount received from the deductors include advance received which has been accounted for m subsequent years, it has been submitted that as per the provisions section 199 (1) as amended by Finance Act. 2008, the deduction of TDS should be allowed in the year of deduction and there is no condition that the

ITA Nos. 195 & 196/Agr/2015 5

income should be accounted for in the year of deduction. It has been submitted that in assesses case part of income of accounted for in the year and the advance received has been accounted for in subsequent year. This system has been regularly followed and therefore, it was requested that the benefit of TDS should be allowed in the year in which tax is deducted.

Officer, it is clear that the assessee has claimed that the job work was received in the

name of assessee company as well as in the name of Madhukar Kapur. Entire

receipts credited in the bank account of Madhukar Kapur had been accounted for in

the hands of the assessee company. Further, Madhukar Kapur has not claimed any

TDS. It was submitted that the credit of TDS reflected in form No. 26AS in the case of

Madhukar Kapur should have been allowed in the hands of the assessee company.

The Assessing Officer had allowed the credit of TDS reflected in the form 26AS of

Shri Madhukar Kapur, in the hands of the assessee company subject to verification

that it has not been claimed by Shri Madhukar Kapur.

before the ld. CIT(A) and at page 16 of the order, the CIT(A) in paragraph No. 8.2

had mentioned as under :

Para 8.2 of CIT(A) order page 16 – not found

ITA Nos. 195 & 196/Agr/2015 6

in the account of Madhukar Kapur subject to verification, the credit of TDS has not

been claimed by Madhukar Kapur, the Principal CIT had invoked the jurisdiction

u/s. 263, as the PCIT was of the opinion that the assessee does not fall within an of

the four categories mentioned in clause (i) of Rule 37BA(2) red with section 199(3)

of the Act.

reply to the show cause notice. In pursuance thereto, the assessee filed the reply and

raised following objections :

(i). Reopening of assessment will amount to change of opinion since credit of TDS in the name of person other than the assessee is allowed after due deliberation on the matter.

(ii). The order of the Assessing Officer allowing credit of TDS after due verification is not prejudicial to the interest of revenue.

(iii). The order of the Assessing Officer is not prejudicial to the interest of revenue in view of section 205 of the Act.

(iv). The matter is pending before the Hon’ble Allahabad High Court, hence, same may be kept in abeyance.

thereafter has directed the Assessing Officer to give the credit to the extent of TDS

ITA Nos. 195 & 196/Agr/2015 7

certificate issued in the name of assessee only and withdraw the TDS certificate in

the name of Madhukar Kapur. Feeling aggrieved by the order, the assessee is before

us.

the issue of computation of TDS was examined by the CIT(A) and therefore, in view

of clause (c) of Explanation 1 to sub-sec. (1) of Sec.263, the PCIT had no jurisdiction

to revise such order which had been decided by the CIT(A). Further, it was

submitted that the CIT(A) and Principal CIT are the officers of the same rank, though

the PCIT is exercising supervisory powers whereas the CIT(A) is exercising

appellate jurisdiction. It was submitted that it is not within the domain of the PCIT

to revise an order which had attained finality at the end of CIT(A). The ld. AR relied

upon following four decision to buttress his argument :

(i). S.K. Jain v. CIT (2010) 27 ITD 217 (Agra)(TM) (ii). Cit V. Nirma Chemicals Works Pvt. Ltd., 309 ITR 67 (iii). Haryana Paper Distributors (P) Ltd. vs. Pr. CIT(2018) 95 taxmann.com 152 (Gujrat) (iv). CIT(E) v. Slum Rehabilitation Authority dt. 26.03.2019(Bom) 412 ITR 521.

written submissions, it was submitted as under :

(2) Section 263 can be invoked if both the following twin conditions are satisfied: -

ITA Nos. 195 & 196/Agr/2015 8

- that the order passed by the A.O. is erroneous and - that it is prejudicial to the interest of Revenue.

If one of them is absent, the provisions of section 263 cannot be invoked. The term 'erroneous" has not been defined under the Income-tax Act but it is well settled that each and every type of mistake or error committed by the A.O. cannot be said to be an error. An order can be said to be erroneous if there is incorrect assumption of facts or incorrect application of law in the order by the A.O. If the A.O. after making the enquiries and examining the records taken one of the possible view, it cannot be said that the order passed by the A.O. was erroneous.

(3) In the case at present is that the assessee claimed TDS credit for the amount which was reflecting in the 26AS of Mr. Madhukar Kapur. The reason for the same was that due to secrecy, the assessee company did not enter into the contract for printing but in the name of its director. However, since, the business was relating to the assessee, the income was offered by the assessee company and also claimed TDS credit for the same.

(4) The CIT observed (Page No. 1 of the Order - at Page 54 ol the Paper Book) that as per sub seciion (3) of section 199. the credit can be claimed by the person other than the person referred in sub-section (1}. us per the rule made by the board in this regard. Board prescribed Rule 37BA of the Rule, which provided four cases prior to its substitution on 1.11.2011. Further as per the proviso to the said Rule, the deductee was required to file with the deductor a declaration in this regard.

(5) The CIT did not appreciate the following points: -

(i) Section 199 of the Act, for credit of TDS to the assessee in whose income the amount on which TDS is deducted. Ii also allows the credit to any other person as per subsection (3) of the Act.

(ii) Though the Rule 37BA prescribed by CBDT requires certain procedure but it cannot supersede the provisions of law. Section 199 provides that,

"(I) Any deduction made in accordance -with the foregoing provisions of this Chapter and paid fo the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.

ITA Nos. 195 & 196/Agr/2015 9

(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such pay mem of tax has been made.

(3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for thf purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given. "

(6) Rule37BA prior to substitution of clause (2) w.e.f. 1.11.2011 provided as under: - "(1) Credit for tax deducted at source and paid to the Central Government in accordance •with the provisions of Chapter XV 11, shall be given to the person to whom payment has been made or credit has been given (hereinafter referred to as deductee) on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority or the person authorized by such authority.

(2) (i) If the. income on which tax has been de-ducted at source is assessable in the hands of a person other than the deductee, credit for lax deducted ai source shall be given to the other person in cases where—

(a) the income of the deductee is included in the total income of another person under the provisions of section 60, section 61, section 64, section 93 or section 94;

(b) the income of a deductee being an association of persons or a trust is assessable in the hands of members of the association of persons, or in the hands of trustees, as the case may be;

(c) the income from an asset held in the name of a deductee, being a partner of a firm or a karta of a Hindu undivided family, is assessable as the income of the firm, or Hindu undivided family, as the case may be;

(d) the income from a property, deposit, security, unit or share held in the name of a deductee is owned jointly by the deductee and other persons and the income is assessable in their hands in the same proportion as their ownership of the asset:

Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other person in the information relating to deduction of tax. referred to in sub-rule (1). "

(7) Clause (2) of the said Rule 37BA was substituted w.e.f. 1.11.2011 as under: -

ITA Nos. 195 & 196/Agr/2015 10

(i) Where under any provisions of the Act, the whole or any part of the income on which tax has been deducted at source is assessable in the hands of a person other than the deductee, credit for the whole or any part of the tax deducted at source, as the case may be, shall be given to the other person and not to the deductee:

Provided that the deductee files a declaration with the deductor and the deductor reports the tax deduction in the name of the other pi. non in the information relating to deduction of tax referred to in sub-rule (1). "

(8) W.e.f. 1.11.2011, the four conditions which were required as per Rule 37BA were deleted and stated that where under any provisions of the Act, the whole or any part of the income is assessable in the hands of a person other than deductee. the credit will be allowed to the said person.

(9) Regarding the applicability of the substituted clause for the impugned assessment years, it is stated that in the case of Bhooratnam & Co. (2-13) 357 ITR 396 (AP) that, "Rule 37BA is a procedural provision dealing with the manner of giving credit for tax deducted at source for the purposes of section 199."

It should be appreciated that where a new procedure is prescribed by law, it governs all pending cases, alterations, in the name of procedure, are always retrospective unless there is some good reason why they should not be, and the amendment to Rule 37BA, as introduced by the Income tax (8n Amendment) Rules, 2011. being procedural in nature, would have retrospective effect. (10) Hence, the observation of the CIT that the rule as applicable lo prior to substitution of clause (2) will be applicable is not correct.

(1)The question arises whether the view taken by the AO is a possible view. The view taken by the AO is based on the following cases wherein it was held that the assessee other than the person in whose name the tax was deducted at source will be allowed TDS credit if the income is taxable in its hands and there is no objection on that.

CIT Vs. Bhooratnam & Co. (357 ITR 396) AP High Court [Page -15 to 22 of case laws paper book] 18. Rule 37BA is a procedural provision dealing with the manner of giving credit for tax deducted at source for the purposes of section 199. It therefore applies to pending proceedings. As observed in State of Madras v. Lateef Hamid & Co. AIR 1972 SC 1781, where a new procedure is prescribed by law, it governs all pending cases.

ITA Nos. 195 & 196/Agr/2015 11

CIT Vs. Relcom [234 Taxman 6931 (Delhi) [Page - 30 to 34 of case laws paper book] The revenue having assessed REPL's income in respect of such TDS claim, which it has not availed, cannot deny the assessee's claim on the mere technical ground that the income in respect of the said TDS claim was not that of the assessee, given that the assessee and REPL are sister concerns and RFI'L has not raised any objection with regard to the assessee's TDS claim Rs. 1,20,73,097 Para 7)

The revenue's contention that the assessee, instead of claiming the entire TDS amount, ought to have sought a correction of the vendor's mistake, would unnecessarily prolong the entire process of seeking refund based on TDS credit. (Para 10)

Parmanand Tiwari Vs. ITO [20151 54 taxinann.com 25 (Kolkata - Trib.) (Copy enclosed) Assessee partner was a Chartered Accountant and was earning on his profession under partnership firm - Partnership firm got dissolved and assessee became proprietor of said firm - Assessee contended that he had already included entire income of firm in his return of income and accordingly, credit for TDS should be allowed in accordance with rule 37BA of Income-tax Rules - Assessing Officer disallowed said claim by observing that rule 37BA was inserted with effect from 1-4-2009 only and same would not apply in relevant assessment year - Whether since rule was inserted to remove hardship faced by assessees and to give true meaning to provision of section 199. credit of TDS was to be allowed - Held, yes [Para 4] [In favour of assessee]

ITA Nos. 195 & 196/Agr/2015 12

(12) In the case at present, the CIT reopened the assessment invoking section 263 without appreciating that the claim of the assessee was allowed by the assessing officer was a possible view which was taken by the department earlier also consistently except Asst. Year 2009-10 which was allowed by the CH (A).

(13) If the AO has taken a possible view which is duly supported by various case laws, the order passed by the AO cannot be regarded to be an erroneous order. The said view is duly supported by the following decisions: -

Malabar Industrial Co. Ltd, vs. CIT, 243 1TR 83 (SO The pre-reijiiisite to the exercise oj jurisdiction by the Commissioner under section 263 is that the order of the AO is erroneous insofar as it is prejudicial to the interests of the revenue. The commissioner has to be satisfied of twin conditions, namely, (i) the order of the assessing officer sought to he revised /.v erroneous; and (iij is prejudicial to (he interests of' the revenue. If one of them is absent- if the order of the Assessing office is erroneous but is not prejudicial to the revenue - recourse cannot be had to section 263(1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the assessing officer, it is only "when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interest of the revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of the order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, if the assessing officer has adopted one of the courses permissible in Ui\ v and it has resulted in loss of revenue, or where two views are possible and the assessing officer has taken one view with which the commissioner does not agree, if cannot be seated as an erroneous order prejudicial to the interests of the revenue, _while the view taken by theassessing officer is unsustainable in law. Where a sum not earned by a person is assessed as income in his hands on his so offering the order passed by the assessing officer accepting the same without application of mind as such will be erroneous and prejudicial to the interest of the revenue.

CIT vs. R.K. Construction Co., Hon'ble Gujarat High court 313 ITR 65 (Guj.) The detail^ of sub-contractors examined by (he AO as per the directions of CIT in revision proceedings, inter alia, include the names of these sub-contractors, their permanent account numbers, their permanent addresses, amount given to them, name of work entrusted to them, nature of such work and statements recorded by the AO, etc. These details reveal that during the course of examination under s. 131, no question was put to many of these sub- contractors as to the variation in their signatures. Similarly, no question was put to them for

ITA Nos. 195 & 196/Agr/2015 13

the reasons of discounting with the Shroff. It is the stand of the assesses right from the beginning that all these sub-contractors were mainly working for the asscssee and they did not have any office set up and since they were working for the assessee, they have used assessee's address for correspondence, especially with the Government for timely communication. These persons are eligible under s. 44AD to file their returns under presumptive scheme of taxation. All these persons were produced before the AO in revision proceedings and no question was put to them though their statements on oath were recorded. All these persons have confirmed in revision proceedings that the money was not returned by them to any person and was used for their personal benefit. The payments were made to these persons by banking channels and tax was deducted at source in accordance with law. The assessee has also given complete details with respect to labour expenses called for in assessment proceedings. These details were duly verified by the AO with the books and records. No adverse observation was made by the AO and hence, no addition was made in the regular assessment. The AO has also randomly selected the labourers and examined them and their statements were recorded under s. 131. Since all necessary details were furnished by the assessee, there was no reason for /he CIT to invoke the revisional jurisdiction under s. 263. The CIT has not stopped merely by issuance of notice under s. 263. Once compliance is made, he went on issuing notice after notice and certain adverse inference were drawn by him from the details collected by him during the revisional proceedings. Those details were thoroughly checked and examined by the Tribunal and it arrived at a factual finding that there was no illegality committed by the assessee in entrusting the work to sub-contractors nor there was any illegality in making all due payments to them. The Tribunal has also given specific finding to the effect that there was no evidence on record that these contractors were related to the assessee or were associates or sister concerns of the assessee. The Tribunal has also given finding that the Revenue has not discharged the onus that the payments to sub-contractors were not genuine. Thus the Tribunal has come to the conclusion that no disallowances can be made merely on the basis of suspicion, howsoever strong may it be, and the suspicion cannot take the place of actuality. AO has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the CIT in revisional proceedings, the CIT has taken u different view. However, in the revisional proceedings under s. 263. it is no/ open for the CIT to take such a different view. No substantial questions of law arise out of the order of the Tribunal and hence, the appeal filed by the Revenue deserves to be dismissed. - CIT vs. Arvirid Jewellers (2002) 177 CTR (Guj) 546 : (2003) 259 ITR 502 (Gttj) and Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) I : (2000) 243 ITR 83 (SC) relied on).

CIT vs. Max India Limited, 295 ITR 282 The phrase "prejudicial to the interests of the Revenue" in section 263 of the Income-tax Act, 1961, has to be read in conjunction with the expression "erroneous" order passed by

ITA Nos. 195 & 196/Agr/2015 14

the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law.

(14) In view of the various decisions relied on b> me, Your Honour will appreciate that the view taken by the AO for allowing the credit of the TDS to the assessee was a view duly supported by the various case laws and cannot be held to be a view which is contrary to the law or illegal and when there is a possible view taken by the AO, until and unless such view is unsustainable in law, the order passed by the AO cannot be held to be erroneous. I therefore request to your Honours to quash the order passed u/s 263 of the Act

(15) Regarding the declaration to be filed, the assessee had given a declaration in this regard. A copy of the said declaration is given at Page No. 69 of the Paper Book.

(16) It is further stated that Section 205 of the Act provides that where tax is deductible at the source under the foregoing provisions of this Chapter, the assessee shall not be called upon to pay the tax himself to the extent of which the tax has been deducted from that income.

(17) If the section 205 and 199 are read simultaneously, when the tax was deducted at source, no direct demand can be made from the assessee as per section 205. Section 199 provides the credit for tax deducted. The assessee offered the income and claimed credit.

(18) This is settled law that the provisions under which the rules are made, even the rule does not state when and how the declaration has to be filed by the other person.

(19) CIT opined that the board powers to create rules entitles the board to overrule the right of the assessee granted by the parliament, in this case by enacting section 199(1).

- It is against the constitution which has always held that the parliament enactments are supreme.

The authority delegated to the board vide section 199(3) is only to make rules for allowing credit of TDS. The same cannot be read to mean that the board is empowered to disallow the credit of TDS by inserting rules.

ITA Nos. 195 & 196/Agr/2015 15

In this regard, reliance is placed on the judgement of the Hon'ble Apex Court in the case of CIT Vs. Taj Mahal Hotel [19711 82 ITR 44 (SO that "The Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect. "

(20) Rule 37BA mitigates the hardship faced by the assessee and not to create hardship. It is a beneficial provision mitigating the hardship of the assessee.

(21) Further, the order of the AO was also not prejudicial to the interest of the revenue. The assessee company offered the income and claimed credit of TDS. The director of the assessee in whose name the TDS certificates were issued did not offer the income and did not claim any credit for TDS. Thus, the order of the AO was also not prejudicial to the interest of the revenue.

(22) So far the challenge of the order on merit is concerned, I rely on my aforesaid submission made on the basis of provisions of section 199 and also the ruling given in the various decisions that if the income is assessed in the hands of the assessee, the assessee must be entitled for the credit of the tax deducted on the said income.

(23) So far as the additional ground is concerned, the interest u/s 234A, 234B and 234C has to be computed after deducting TDS alongwith the advance tax out of the tax computed on the total income assessed in regular assessment. In this regard, I draw your attention towards the provisions of section 234A, 234B and 234C r.w.s. 215(5) of the Act.”

jurisdiction in appeal for the assessment year 2010-11 if the Assessing Officer has

denied the benefit of adjustment of TDS mentioned in Form 26AS of Mr. Madhukar

Kapur to the assessee. It was further submitted that if there is denial of this addition,

then the cause of action for filing of appeal lies with the CIT(A) and it was further

submitted that paragraph No. 8.2 referred by the ld. AR is required to be read in the

light of question framed by the ld. CIT(A).Further, it was submitted that as there is

specific prohibition in Rule 37BA for giving benefit of TDS deposited in name of

ITA Nos. 195 & 196/Agr/2015 16

third person to the assessee, the assessee do not fall in any of the four conditions

mentioned in Rule 37BA. Therefore, the order passed by the ld. PCIT is correct and

the order passed by the Assessing Officer was erroneous and prejudicial to the

interest of revenue.

record. In paragraph No. 5 for the assessment year 2010-11, reproduced herein

above, it is abundantly clear that the Assessing Officer has granted the relief to the

assessee, as the Assessing Officer in the order had mentioned that the credit of TDS

reflected in form No. 26AS of the assessee and of Shri Madhukar Kapur shall be

allowed to the assessee subject to the verification that the credit of TDS has not been

laimed by Shri Madhukar Kapur. In view of the categorical finding given by the

Assessing Officer in favour of the assessee that the credit of the TDS mentioned in

26AS of Madhukar Kapur shall be given to the assessee firm, in view thereof, there

would not have been any grievance to the assessee to challenge the said order by

way of appeal before the ld. CIT(A). In view of the above, we are of the opinion that

the issue has not been subject matter of scrutiny before the ld. CIT(A) and in view

thereof, clause (c) of Explanation 1 to sub-sec. (1) of section 263 is not applicable.

Further, we would like to reproduce ground No. 8 raised by the assessee before the

ITA Nos. 195 & 196/Agr/2015 17

ld. CIT(A) as mentioned by the ld. CIT(A) at page 2 of the order to the following

effect :

“8. Calculation of Income Tax and Interest is wrong.”

The ld. CIT(A) at page 15 had reproduced the submission of the assessee and

thereafter had recorded the finding on ground No. 8 in para 8.2. Paragraph No. 801

& 8.2 of the order of ld. CIT(A) are as under :

8.1 In Ground no.8, the appellant has disputed calculation of income tax and interest. While putting up his argument in respect of this ground, the Id. AR filed a written submission on 19.11.2014 as under: -

“Under this ground, we dispute the conclusion of the Ld. AO that TDS on Advances received from customers is to be allowed only in the year in which the Income in respect of the same is accounted for.

It is submitted that the allowability of Credit of TDS is governed by sec 199(1) which reads as under :

“199. (1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the ca.se may be."

So, on a plain reading of the section, it is deer that it is nowhere required that the credit of tax would be allowable only in the year in which the income has been offerred to tax. The section was overhauled through the Finance Act 2008 and prior to its substitution, the section read as under:

199(1) Any deduction made in accordance with the foregoing provisions of this chapter and paid to the credit of the central government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or the owner of the security, or of the depositor or of the owner of the property or of the unit holder, or of the shareholder as the case may be, and credit shall be given to him for the amount so

ITA Nos. 195 & 196/Agr/2015 18

deducted in production of the certificate furnished under section 203 in the assessment made under this act for the assessment year for which such income is assessed.

From the above, it is dear that the requirement of TDS credit being allowed for the year in which the income is assessable has been done away with vide the Finance Act 2008 and no longer is there a need to establish a nexus between the Credit of TDS, being claimed and the corresponding Income being offered to tax.

In any case, the amounts appearing as dosing advances from customers have been included in the income of the assessee in the subsequent years.

We have prepared and enclosed a party-wise summary of the total amount received from parties, TDS deducted on total amount received from parties and TDS amounts on advances received.

We submit that this contention of the assessee has been accepted by the Ld. A.O. in the assessment proceedings for AY 2011-12 (copy of order enclosed) and in view of the same, your honour is requested to allow the entire credit of TDS (including that deducted on advances)."

8.2 I have considered the above argument taken by the Id. AR. For giving credit for TDS, the provisions of section 199 of the Act read with Rule 37BA of Income-tax Rule 1962 is to be followed. Therefore, the A.O. is directed to give credit for TDS after making necessary verification of TDS certificate filed by the assessee company and give credit for TDS as per the provisions of section 199 read with Rule 37BA. In view of my above direction, ground No. 8 is decided accordingly.”

From the bare reading of the above finding and the question of law and the ground

urged before the ld. CIT(A), it is abundantly clear that the issue “whether TDS credit

in the account of Madhukar Kapur, as mentioned in Form 26AS , can be credit to the

account of the assessee” was not a subject matter of appeal before the ld. CIT(A).

ITA Nos. 195 & 196/Agr/2015 19

quasi judicial authorities are required to be read in the context of grounds urged

before them and should not be read in isolation and out of the context. Thus, it is

crystal clear that the subject matter of the proceedings u/s. 263 was not the subject

matter of the proceedings before the ld.CIT(A) and in view thereof, the primary

ground raised by the assessee is without merit and accordingly, the same is

dismissed.

PCIT has failed to notice the twin conditions as laid down by Hon’ble Supreme Court

in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the matter

of Max India Ltd. and other judgments.

appropriate to mention the principle of law which was culled out by the various

authorities (Hon’ble Supreme Court and High Court) and the Tribunal. We have a

benefit of going through the decision of the Hon’ble Madras High Court in the matter

of Cairn India Ltd. Vs. DIT, 87 Taxmann.com 310 (Mad)and also the decision of the

Hon’ble Supreme Court in the matter of CIT Vs. Amitabh Bachhan, 69 Taxmann.com

ITA Nos. 195 & 196/Agr/2015 20

170 (SC).The Hon’bleMadras High Court in Para 8 and 8.1 had broadly noted the

scope of ambit of Section 263 to the following effect:

“8. We have heard the learned counsel for the parties and perused the record. 8.1 However, before we proceed further, we may summarise the broad principles of law, which are required to be kept in mind by the Commissioner, while exercising his power under Section 263 of 1961 Act: (i) The power is supervisory in nature, whereby the Commissioner can call for and examine the assessment records.

(ii) The Commissioner can revise the assessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite. [See Malabar Industrial Co. Ltd. (supra)]

(iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of principles of natural justice or is passed without application of mind, that is, is stereo- typed, in as much as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with undue haste". [Gee Vee Enterprises v. Asstt. CIT [1975] 99 ITR 375 (Delhi)]

(iv) The expression "prejudicial to the interest of the Revenue" while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. [See Malabar Industrial Co. Ltd.].

(v) Every loss of tax to the Revenue cannot be treated as being "prejudicial to the interest of the Revenue". For example, when the Assessing Officer takes recourse to one of the two legally viable courses or where there are two views possible and the Commissioner does not agree with the view taken by the Assessing Officer which has resulted in a loss.[See CITv. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC)]

(vi) There is no requirement of issuance of a notice before commencing proceedings under Section 263 of the Act. What is required is adherence to the principles of natural justice by granting to the assessee an opportunity of being heard before passing an order under Section 263. [CIT v. Electro House [1971] 82 ITR 824 (SC)].

(vii) If the Assessing Officer acts in accordance with law his order cannot be termed as erroneous by the

ITA Nos. 195 & 196/Agr/2015 21

Commissioner, simply because according to him, the order should have been written more elaborately". Recourse cannot be taken to Section 263 to substitute the view of the Assessing Officer with that of the Commissioner.[See Gabriel India Ltd. (supra)]

(viii) The exercise of statutory power under Section 263 of the Act is dependent on existence of objective facts ascertained from prima facie material on record. The evaluation of such material should show that tax which was lawfully exigible was not imposed. [See Gabriel India Ltd. (supra)].”

“20. An argument has been made on behalf of the assessee that notice under Section 69-C was issued by the Assessing Officer and thereafter on withdrawal of the claim by the assessee the Assessing Officer thought that the matter ought not to be investigated any further. This, according to the learned counsel for the assessee, is a possible view and when two views are possible on an issue, exercise of revisional power under Section 263 would not be justified. Reliance in this regard has been placed on a judgment of this Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 which has been approved in CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) 21. There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming to his conclusions insofar as the issue No. (iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion. 22. In the light of the discussions that have preceded and for the reasons alluded we are of the opinion that the present is a fit case for exercise of the suomotu revisional powers of the learned C.I.T. under Section 263 of the Act. The order of the learned C.I.T., therefore, is restored and those of the learned Tribunal dated 28th August, 2007 and the High Court dated 7th August, 2008 are set aside. The appeal of the Revenue is allowed. 23. Leave granted. 24. Pursuant to the revisional order dated 20th March, 2006 under Section 263 of the Income Tax Act setting aside the assessment order for the assessment year 2001-2002 and directing fresh assessment, a fresh assessment had been made by the Assessing Officer by order dated 29th December, 2006. Against the said order the respondent assessee filed an appeal before the learned Commissioner of Income Tax

ITA Nos. 195 & 196/Agr/2015 22

(Appeals). By order dated 18th October, 2007 the learned Commissioner of Income Tax (Appeals) had set aside the assessment order dated 29th December, 2006 as in the meantime, by order dated 28th August, 2007 of the learned Income Tax Appellate Tribunal the revisional order dated 20th March, 2006 under Section 263 of the Act was set aside. The Revenue's appeal before the learned Tribunal against the order dated 18th October, 2007 was dismissed on 11th January, 2000 and by the High Court on 29th February, 2012. Against the aforesaid order of the High Court this appeal has been filed by the Revenue. As by the order passed today in the Civil Appeal arising out of Special Leave Petition (Civil) No.11621 of 2009 we have restored the suomotu revisional order dated 20th March, 2006 passed by the learned C.I.T., we allow this appeal filed by the Revenue and set aside the order dated 11th January, 2010 passed by the learned Tribunal and the order dated 29th February, 2012 passed by the High Court referred to above. However, we have to add that as the re-assessment order dated 29th December, 2006 had not been tested on merits the assessee would be free to do so, if he is so inclined and so advised.”

of Commissioner of Income Tax, Meerut Vs. Vam Resorts & Hotels Pvt. Ltd. (Income

Tax Appeal No. 107 of 2015), wherein, it was held as under :

ITA Nos. 195 & 196/Agr/2015 23

the remand order hinges, as such the remand order was not sustainable in the eyes of law.

In the matter of Meerut Sugar Mills, wherein it was held as under :

“7. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase 'prejudicial to the interests of the revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning, it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 208 and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/ 79 Taxman 184 treated loss of tax as prejudicial to the interests of the revenue.

ITA Nos. 195 & 196/Agr/2015 24

ITA Nos. 195 & 196/Agr/2015 25

point out how the order of the Assessing Officer was erroneous insofar as it is prejudicial to the interest of the revenue. While the counsel for the assessee relying upon Para No. 10 of the said judgment submitted that the order passed by the assessing authority was not without application of mind, as the same was passed after the replying upon the documentary evidence submitted by the assessee.

ITA Nos. 195 & 196/Agr/2015 26

not lead to an assumption that there was no application of mind and the order is erroneous. In Krishna Capbox (P.) Ltd. (supra), this Court held as under:-

"This is for the reason that if a query was raised during the course of scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer was reflected in the assessment order, that would not, by itself, lead to the conclusion that the order of the Assessing Officer called for interference and revision."

ITA Nos. 195 & 196/Agr/2015 27

in Idea Cellular Ltd. Vs. Dy. CIT [2008] 301 ITR 407 (Bom.) has taken a similar view and said as under (page 307 of 372 ITR):

"......if a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the Assessment Order would not lead to a conclusion that no mind had been applied to it."

"11. In the case of Goyal Private Family Specific Trust [1988] 171 ITR 698, this court has held that the order of the Income-tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment order as erroneous and prejudicial to the interests of the Revenue and it was for the Commissioner to point out as to what error was committed by the Income-tax Officer in having reached to its conclusion and in the absence of which proceedings under Section 263 of the Act is not warranted.

ITA Nos. 195 & 196/Agr/2015 28

instances, which in the present case, the Commissioner of Income Tax has failed to do."

before PCIT and before us that at the relevant time, the order was passed by the

Assessing Officer, Rule 37BA was applicable. Furth3r, the assessee has failed to

mention that the case of the assessee would fall in any of the ingredients mentioned

in Rule 37BA, as reproduced by the ld. PCIT in para 2 of the impugned order. In view

of the legal position, the opinion formed by the PCIT that the order passed by the

ITA Nos. 195 & 196/Agr/2015 29

Assessing Officer was erroneous and prejudicial to the interest of revenue cannot be

faulted.

was not raised before the PCIT that the Rule 37BA which was substituted w.e.f.

01.11.2011 was retrospective in nature and for that purposes, the ld.AR relied upon

the decision of A.P. High court in the matter of CIT vs. Bhooratnam & Co., 357 ITR

396, CIT vs. Relcom, 234 Taxman 693 (Delhi), Parmanand Tiwari vs. ITO, 54

taxmann.com 25 (Kol. Trib.). We have occasion to go through all these decisions and

in our respectful understanding, none of the decisions are applicable. In the first

case of Bhooratnam & Co. , the facts were that the Assessing Officer had denied to

benefit of TDS to the assessee whereas the TDS certificate was issued in the name of

joint venture. In the present case, as is clear from the assessment order, the assessee

was doing job works in the name of the company and there was separate job work

done by the director Shri Madhukar Kapur. Therefore, the obligation to deduct TDS

of the deductor was in respect of the payment made to the assessee and also to

Madhukar Kapur separately. Similarly, the other decisions are also not applicable.

As mentioned herein above, recently by the decision dated 20.08.2019, Hon’ble

Jurisdictional High Court had held that the order of the PCIT is required to be tested

based on the material and the record available at the time of examining the

ITA Nos. 195 & 196/Agr/2015 30

assessment proceedings. Once the material now cited before us was not available

with the Pr. CIT, therefore, we do not find any mistake in the order passed by the

PCIT.

assessee that the matter is sub-judice before the jurisdictional High Court by way of

writ petition. However, during the course of arguments, the assessee had not

informed about the outcome of the proceedings initiated by the assessee before the

Hon’ble High Court. In our view, the adverse inference is required to be drawn as

nothing has been brought on record de hors the pendency of writ petition before the

High Court. We do not find any merit in the submissions of the assessee.

Accordingly, both the appeals of the assessee are dismissed.

Order pronounced in the open court on 2nd September, 2019.

Sd/- Sd/-

(Dr. Mitha Lal Meena) (Laliet Kumar) Accountant Member Judicial member

Dated: 2nd September, 2019 *aks*