THE CIT-II INDORE vs. SHRI JANAK GANDHI INDORE

1 Income Tax Appeal No.87/2005 Income Tax Appeal No.92/2005 Income Tax Appeal No.93/2005 Income Tax Appeal No.94/2005 Income Tax Appeal No.95/2005 Income Tax Appeal No.421/2007 23.02.2016 Shri R.L. Jain, learned Senior Counsel with Ms. Veena Mandlik, learned counsel for the appellant / Department. Shri Ashish Goyal, learned counsel for the respondent. Heard on IA No.675/2016 filed in Income Tax Appeal No.87/2005, IA No.676/2016 filed in Income Tax Appeal No.92/2005, IA No.677/2016 filed in Income Tax Appeal No.93/2005, IA No.678/2016 filed in Income Tax Appeal No.94/2005, IA No.679/2016 filed in Income Tax Appeal No.95/2005 and IA No.49/2016 filed in Income Tax Appeal No.421/2007 are the applications filed by the respondent for dismissal of the appeal. 2. This order shall govern disposal of Income Tax Appeals No.87 & 92 to 95 of 2005 and Income Tax Appeal No.421 of 2007. For the sake of convenience, facts are taken from Income Tax Appeal No.87/2005. 3. This appeal has been filed by the department in the year 2005 for the assessment year 1995-96. 4. The interlocutory application has been filed by the respondent on the ground that as per the CBDT Circular No.21/2015 (Annexure-1), an appeal can be filed by the Department only if the tax effect is more than Rs.20,00,000/- (rupees twenty lakhs). 5. In the present case, the tax effect is Rs.95,000/-, much less than Rs.20,00,000/-. It is also submitted that 2 the aforesaid circular clearly states in paragraph 10, that the instruction shall apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts / Tribunals, and therefore, learned counsel for the respondent prayed that the appeal be dismissed as the tax effect is below Rs.20,00,000/-. 6. Shri R.L. Jain, learned Senior Counsel for the appellant / Department has opposed the prayer and submitted that the case for assessment year 1995-96 was re-opened under Section 148 of the Income Tax Act, 1961, on the basis of audit objections dated 17.03.2004 raised by the Office of Accountant General (Audit-II) Madhya Pradesh, Gwalior, and therefore, prays for dismissal of the application. 7. As per record, Deputy Accountant General raised objection that assessee derived income from salary and interest amounting to Rs.60,000/- and Rs.70,912/- respectively which did not qualify for the deduction. Only the business income of Rs.47,494/- was qualify for deduction and the rest of RS.83,418/- involving the short levy of tax including interest of Rs.12,020/- should have been taxed. The mistake resulted in under assessment of income of Rs.13,95,292/- involving short by levy of tax including interest of Rs.6,52,280/-. On the basis of the aforesaid, the then Income Tax Officer was of the opinion that the income chargeable has escaped for the assessment year, subject to Section 148 to Section 153 of the Income Tax Act, 1961 and proposed to retain such income and also such income chargeable to tax, which has escaped 3 attention. 8. A notice under Section 148 of the Income Tax Act, 1961 was issued to the respondent. Learned Assessing Officer by order dated 27.03.2002 allowed the deductions under Section 35-AC of the Income Tax Act, 1961 by holding that all the conditions are fulfilled by the assessee and decided the case in favour of the assessee for the assessment years 1995-96 to 1999-2000. 9. The Commissioner of Income Tax-II, Indore, after verification of the records of the assessment period initiated proceedings under Section 263 of the Income Tax Act, 1961 and after due notice to the assessee, in exercise of powers conferred by Section 263 of the Income Tax Act, 1961 of the assessment orders passed by the Income Tax Officer under Section 143 (3) and Section 148 of the Income Tax Act, 1961 on 27.03.2002, were set aside with direction that the assessment should be framed afresh by the Assessing Officer, after proper examination of amount allowable under Section 35-AC of the Income Tax Act, 1961. This order has been challenged by the respondent – assessee by filing an appeal before the Income Tax Appellate Tribunal, Indore Bench, Indore. Learned Tribunal by order dated 30.12.2004 set aside the revisional order and assessment order and restored the assessment order passed on 27.03.2002; paragraphs No.13 to 15 are relevant, which read as under: - “13. We have considered the arguments advanced by the parties in view of the material available on record, orders of the lower authorities and the decisions relied on by the parties. It is evident that the learned CIT has invoked the provisions of Section 263 of the 4 Act under the background of his visit to Basket Ball Complex and the impression gathered therefrom that though the facility was intended to be used for a noble purpose of preparing basket ballers for national and international level, for which purpose various deductions under the provisions of the Income Tax Act including Section 35AC are being claimed; the complex is being used by O.T.G. Group for its business interest and further that the AO while allowing the claimed deduction under section 35AC, failed to notice that only the business income qualifies for deduction and, therefore, the balance amount should have been taxed resulting in under assessment (1995-96). Regarding A.Y. 1996-97 the ld. CIT observed that the total business income for the year was nil and as such no deduction u/s 35AC is allowable. For the A.Ys. 1997-98, 1998-99 and 1999- 2000 there was loss after deduction of donations to Corporation (Area) Basket Ball Trust, Indore. The ld. CIT was also of the view that the income from salary, interest from VFC and interest on lease rent did not qualify for deduction u/s 35AC of the Act. This Bench of the Tribunal in the case of ITO v. O.T. Gandhi & Sons (supra) relied on by the ld. AR has upheld the first appellate order with the observation that the ld. CIT (A) was justified in allowing the claim of the assessee as deduction u/s 80GGA (2) (bb) is with section 35AC and under these sections there is no necessity of carrying on any business by the assessee and the deduction can be allowed against any income earned by the assessee and computed in the total income of the assessee. Following the same, we thus do not agree with the view of the ld. CIT that the income from salary, interest from VFC, interest and lease rent will not qualify for deduction u/s 35AC of the Act. There is no dispute that at the time of assessments, in question, Corporation (Area) Basket Ball Trust, Indore, was enjoying approval by the national committee and thus the expenditure by way of payment was incurred in respect of eligible projects and schemes notified u/s 35AC of the Act. If there was any violation or non-fulfillment of conditions by the Corporation (Area) Basket Ball Trust, Indore, its approval by the national committee was to be withdrawn under the provisions laid down in sub- section (4) to section 35AC of the Act. Thus, it is altogether different aspect which was to be seen in the 5 case of Corporation (Area) Basket Ball Trust, Indore, and certainly if approval granted by the national committee would have been withdrawn by the national committee from the Corporation (Area) Basket Ball Trust, Indore, for the period, under consideration, the assessee would not have been entitled to the claim of deduction u/s 35AC of the Act. 14. During the assessment in the case of assessee what AO was to verify for allowing the claim of deduction u/s 35AC was as to whether the institution on which payment of any sum incurred was approved by the National Committee, deduction of the claimed amount of such expenditure was incurred during the years, the certificate of expenditure by way of payment in respect of eligible projects and schemes notified u/s 35AC in Form No.58A were enclosed with return of income and deduction claimed was related to the year in question or not. It is evident from the assessment order in question that the AO has discussed all these aspect and came to the conclusion that all the conditions are fulfilled to allow the deductions u/s 35AC as claimed by the assessee. We thus do not agree with the findings of the ld. CIT that the AO did not make proper inquiry while allowing the claimed deductions and thus the assessment order are erroneous in so far as prejudicial to the interest of revenue. The judgments relied on by the ld. DR support this established position of law that the ld. CIT is very much empowered to invoke provisions of section 263 when assessment order is erroneous and prejudicial to the interest of revenue. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra) has been pleased to hold further that where two views are possible and the ITO has taken one view with which the commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. In the present case the view taken by the AO is not unsustainable in law to justify the impugned action of the ld. CIT. 15. The revisional order in question is thus set aside and assessment order is restored. In result appeals are allowed in favour of the assessee.” 6 10. On due consideration of the aforesaid contention of the learned Senior Counsel for the appellant – Department, that the case for assessment year 1995-96 was reopened under Section 148 of the Income Tax Act, 1961, on the basis of the audit objections raised by the revenue party, cannot be accepted because in the said proceedings, order was passed in favour of the assessee on 27.03.2002, and thereafter, the Commissioner of Income Tax-II, Indore initiated proceedings under Section 263 of the Income Tax Act, 1961 and passed an order on 31.03.2004. It is this order, which was impugned before the ITAT and thus, we allow the application by holding that the case of the appellant – Department would not come under Clause (c) of paragraph 8 of the CBDT Circular No.21/2015 issued on 10th December, 2015. 11. Since the monetary limit involved in the present appeals pertaining to the assessment years 1995-96 to 1999 to 2000 is less than Rs.20,00,000/- (rupees twenty lakhs), in view of the circular dated 10th December, 2015 issued under the signatures of Commissioner of Income Tax (AJ), CBDT, Government of India, New Delhi, Income Tax Appeal No.87/2005, Income Tax Appeal No.92/2005, Income Tax Appeal No.93/2005, Income Tax Appeal No.94/2005, Income Tax Appeal No.95/2005 and Income Tax Appeal No.421/2007 are disposed of, leaving questions of law open. (P.K. Jaiswal) (Alok Verma) Judge Judge Pithawe RC