M/S. KARNATAKA STATE BEVERAGES CORPORATION LIMITED,BANGALORE vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX, BANGALORE - 4, BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SHRI. CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 397/Bang/2020 Assessment Year : 2015-16 M/s. Karnataka State Beverages Corporation The Principal Ltd., Commissioner of 4th Floor, TTMC Income Tax, Building, “A” Block, Bangalore – 4, BMTC , Shanthinagar, Vs. Bangalore. Bengaluru – 560 027. PAN: AACCK1421A APPELLANT RESPONDENT : Shri Narendra Sharma, Assessee by Advocate Revenue by : Smt. S. Praveena, CIT DR Date of Hearing : 15-09-2022 Date of Pronouncement : 29-09-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order passed u/s. 263 of the Act dated 19/03/2020 passed by the Ld.PCIT, Bangalore-4 on following grounds of appeal: “1. The impugned order of the Pr. Commissioner of Income Tax, Bangalore-4 passed under section 263 of the Income Tax Act, 1961 is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. 2. The learned Pr. Commissioner of Income-tax has grossly erred in revising the order passed by the learned Assessing officer without appreciating that there is no

Page 2 of 15 ITA No. 397/Bang/2020 error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned Pr.CIT is ultra vires to the scope of Section 263 and requires to be cancelled under the facts and circumstances of the Appellant's case. The direction to make fresh assessment amounts to ordering for making fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law is liable to be cancelled. 3. The learned Pr. Commissioner of Income-tax failed to appreciate that proceedings under section 263 of the Act cannot be made on the assessment order passed under section 143(3) of the Act since there is a proceeding under section 154 of the Act was initiated by the learned Assessing Officer on the same issue of claim of expenditure of interest payment of Rs.201.88 lakhs and the appellant filed the reply and it appears the appellant submissions was accepted by the Assessing Officer and consequently the revision is not maintainable against the assessment order passed under section 143(3) of the Act on the facts and circumstances of the case. 4. Without prejudice the learned Pr. Commissioner of Income-tax failed to appreciate that the provisions of section 263 of the Act cannot be invoked when already the learned Assessing Officer identified the mistake in the assessment order and issued notice under section 154 of the Act without concluding the said proceedings on the facts and circumstances of the case. 5. The learned Pr. Commissioner of Income Tax is not justified in exercising revisionary powers under section 263 of the Act as the entire proceeding is without jurisdiction and not in accordance with law on the facts and circumstances of the case. 6. The learned Pr. Commissioner of Income Tax is not justified in law in setting aside assessment order passed u/s 143(3) of the Act by holding that the assessment order is erroneous and prejudicial to the interest of revenue on the facts and circumstances of the case. 7. The learned Pr. Commissioner of Income Tax failed to appreciate that the learned Assessing Officer has not disallowed the claim of expenditure of the appellant in respect of interest payment on delay in payment of tax collected at source in the assessment proceedings after

Page 3 of 15 ITA No. 397/Bang/2020 verifying the expenditures claimed by the appellant and consequently the invoking the provisions of section 263 of the Act is not sustainable in law on the facts and circumstances of the case. 8. The learned Pr. Commissioner of Income Tax ought to have appreciated that the issue relating to allowability of claim of interest expenditure on delayed payment of TCS the view adopted by the assessing officer is one of the possible views and hence the assessment order is not erroneous on the facts and circumstances of the case. Further the learned Pr. Commissioner of Income-tax has not given any finding on the submission of the appellant in respect of this ground on the facts and circumstances of the case. 9. The learned Pr. Commissioner of Income Tax erred in not considering that merely because the assessment order does not elaborately discuss on the entitlement of the appellant to claim the expenditure would not mean that there was lack of enquiry on the part of the assessing officer so as to lead to a conclusion that the assessment order is erroneous on the facts and circumstances of the case. 10. The learned Pr. Commissioner of Income Tax is not justified in law in holding that the interest on late payment of TCS is not an expenditure incurred wholly and exclusively for the purpose of business as well finding to the effect that interest paid under any provisions of Income-tax Act for late payment or short payment of regular tax, advance tax, self assessment tax, TDS, TCS etc is not deductible as business expenses on the facts and circumstances of the case. 11. The learned Pr.Commissioner of Income-tax failed to consider the case laws relied by the appellant in its submissions on the facts and circumstances of the case. 12. The learned Pr. Commissioner of Income-tax erred in holding that the action of the learned Assessing officer in not disallowing interest of Rs.201.88 lakhs on delayed payment of TCS under section 206C of the Act is legally incorrect as well on the facts and circumstances of the case. 13. The learned Pr. Commissioner of Income-tax erred in holding that twin conditions contemplated in section 263 of

Page 4 of 15 ITA No. 397/Bang/2020 the Act are satisfied in the present case on the facts and circumstances of the case. 14. The appellant craves for leave of the Hon'ble Tribunal, to add, alter, delete, amend or substitute any or all of the above grounds of appeal as may be necessary at the time of hearing. 15. For these and other grounds that may be urged at the time of hearing of appeal, the appellant prays that the appeal may be allowed for the advancement of substantial cause of justice and equity.” 2. Brief facts of the case are as under: 2.1 The assessee is a company has filed its return of income for the A.Y. 2015-16 on 22.09.2015 declaring total income of Rs.53,14,21,020/-. The case was selected for scrutiny and assessment u/s. 143(3) was completed on 16.11.2017 assessing the income at Rs.61,60,80,940/-. 2.2 Subsequently, on perusal of the income tax assessment records for A.Y. 2015-16, it was noticed that the assessment concluded by the Ld.DCIT, Circle – 4(1)(1) for A.Y. 2015-16 u/s. 143(3) of the Act is erroneous and prejudicial to the interest of revenue. 2.3 The Ld.PCIT issued notice u/s. 263 on 26/06/2019. The scanned copy of the same is reproduced hereunder.

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2.4 In reply to the notice, assessee filed letters dated 01/07/2019 submitting that all the details were examined by the Ld.AO. Scanned copy of the reply is reproduced hereunder.

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Page 8 of 15 ITA No. 397/Bang/2020 2.5 The Ld.PCIT after considering the reply filed by assessee, observed as under: “5. The submission made by the assessee has been carefully considered. As regards the submission of the assessee that rectification proceedings on this issue of already pending, is suffices to say that the pendency of rectification proceedings u/s 154 with AU does not debar the initiation of revisionary proceedings u/s 263 of the IT Act on the same issue. It is seen from the assessment records that No query was raised by the AO in respect of interest payment debited in respect of payment TCS by the appellant. Therefore, even if the tact was mentioned in the notes to account, it cannot be said that the issue was examined by the AO and a conscious decision was taken by him to allow the said interest payment. Therefore, reliance placed by the assessee on the decision of Hon'ble Delhi High Court in the case of CIT vs M/s Sun Beam Auto Ltd (332 ITR 167) and other similar decisions is misplaced. So far as the merits of allowability of deduction of interest on late payment of the 'Fax Collected at Source is concerned, I'm not in agreement with the submission of the appellant that interest on late payment of TCS is an expenditure incurred wholly and exclusively for the purpose of business. Interest paid under any provisions of Income Tax Act, Wealth Tax Act, Fringe Benefit Tax, for late payment or short payment of regular tax, advance tax, sell. assessment tax, TDS, TCS etc is not deductible as business expenditure and the same should have been disallowed by the AU. Reliance in this regard is placed on the decision of honourable Madras High Court in the case of CIT Vs Chennai Properties & Investment Ltd. [1999] 105 Taxman 346 (Madras)/[1999] 239 1TR 435 (Madras), head note of which reads as under: - "Section 37(1), read with section 201(1A), of the Income- tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1981-82 - Assessee having failed to deduct tax at source and remit same to State, had to pay interest under section 201(1A) for delayed period, which it claimed as business deduction - Whether interest paid takes colour from nature of principal amount required to be paid but not paid in time and this principal amount being income-tax. interest is in nature

Page 9 of 15 ITA No. 397/Bang/2020 of a direct tax and settlement of income-tax payable under Act and, therefore. same cannot be regarded as compensatory payment and allowed as business expenditure - Held, yes Accordingly, the action of the AO in not disallowing Interest of Rs. 201.1381.alchs on delayed payment of TCS, u/s 206C of the I '1' Act, is legally incorrect as well. 6. From the foregoing discussion, it is manifestly clear that the assessment order u/s 143(3) dated 16.11.2017 passed by the Assessing Officer in the case of the assessee for A.Y.2015-16 is not only erroneous but also prejudicial to the interests of revenue so far as the issue of allowability of deduction in respect of interest on late payment of Tax Collected at Source is concerned and the twin conditions as contemplated in sec. 263 are satisfied in the present case. Consequently, the assessment order passed by the AO is set aside to the file of the AO with a direction to the Assessing Officer to examine the aforesaid issue and redo the assessment afresh as per law after affording reasonable opportunity of being heard to the assessee.” 2.6 Against the said order, assessee is in appeal before this Tribunal. 3. The Ld.AR submitted that subsequent to the issue of notice u/s. 263, the Ld.AO has issued notice u/s. 154 / 155 seeking rectification of mistakes apparent from the record. The copy of the said rectification is scanned and reproduced hereunder:

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Page 11 of 15 ITA No. 397/Bang/2020 4. On a query being raised by the Tribunal to the Ld.AR regarding the status of 154 notice issued, the Ld.AR submitted that no order has been passed in respect of the same as the same was initiated after the 263 proceedings started. 4.1 The Ld.AR argued that interest on late payment of TCS is compensatory in nature and not penal. In support of this contention, he relied on the decision of Hon’ble Supreme Court in case of Lachmandas Mathuradas vs. CIT reported in (2002) 122 Taxman 828 (SC). 5. On the contrary, the Ld.DR contends that in respect of this extraordinary item that is debited which should have been disallowed, the Ld.AO while passing the original assessment order had not applied his mind and no details were called for in respect of the same for any verification. He sought recourse to Explanation 2 to (c) of section 263 in support of this contention. 5.1 The Ld.DR submitted that the issue considered by the Ld.PCIT in 263 proceedings has not been verified by the Ld.AO while passing the assessment order dated 16/11/2017. He submitted that non-verification of the issue would lead to the assessment order being erroneous in sofar as prejudicial to the interest of revenue. He thus supported the order passed by the Ld.PCIT. 5.2 The Ld.DR also placed reliance on the decision of Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT reported in 243 ITR 83. Further it was pointed out that, in the notes on account no. 22, the said amount has been debited towards extraordinary items

Page 12 of 15 ITA No. 397/Bang/2020 and therefore it cannot be said that no details were filed before the Ld.AO on this issue. We have perused the submissions advanced by both sides in the light of records placed before us. 6. We note that the Ld.AO during the assessment proceedings had only called for information regarding interest free loan received from Govt. of Karnataka without repayment condition and unadjusted balances from previous year. However, the Ld.AO has not verified the extraordinary item of Rs.201.88 Lakhs that was debited to the P&L account. The Ld.AO did not conduct enquiry based on the return filed in lieu of the notices issued post search action. 6.1. In Malabar Industrial Co. Ltd. vs. CIT reported in 243 ITR 83, the Hon'ble Supreme Court held that the revision jurisdiction under section 263 of the IT Act cannot be invoked to correct each and every type of mistake or error committed by the Ld.AO. 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. Further, where the Ld.AO adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Ld.AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Ld.AO is unsustainable in law.

Page 13 of 15 ITA No. 397/Bang/2020 6.2. Hon'ble Supreme Court in Malabar Industrial Co. Ltd. (supra), noted that, the Ld.AO passed the order of nil assessment without application of mind. Hon’ble Court also recorded a finding that the Ld.AO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. The Ld.AO in Malabar Industrial Co. Ltd. (supra), accepted an entry in the statement of the account filed by the assessee therein, in the absence of any supporting material and without making any inquiry. Hon'ble Supreme Court, then held that on such facts, the conclusion that the order of the Ld.AO was erroneous was irresistible. 6.3. This decision, according to us, assists the case of the Revenue, since, in the present case as well, there was no inquiry by the Ld.AO on the issue of the extra ordinary item of Rs.201.88 lakhs debited to the P& L account that formed part of the Notes to the accounts. The mere seeking of information but thereafter, not even looking into the same is not the same thing as inquiring into the matter. Further, the Ld.AO has to consider the information so furnished and after applying the mind, arrive at a decision one way or the other on the issue before him. 6.4. In Gabriel India Ltd. reported in (1993) 71 Taxman 585, Hon’ble Bombay High Court held that, the decision of the Ld.AO cannot be regarded as erroneous simply because the Ld.AO did not make an elaborate discussion in the order. In the present facts of the case as noted earlier, there is no discussion whatsoever, much less any inadequate discussion. Moreover, in Gabriel India Ltd. (supra), the Ld.P.CIT after initiating proceedings for revision, could not himself say that the allowance

Page 14 of 15 ITA No. 397/Bang/2020 of the claim of the assessee therein was erroneous and that the expenditure was not revenue expenditure, but an expenditure of capital nature. It is in these circumstances that the exercise of revision jurisdiction was interfered with by this Court. Respectfully following the ratio laid down by Hon’ble Supreme Court in case of Malabar Industries (supra), we do not find any error in the revisionary proceedings initiated in the present facts of the case and the same is upheld. However the Ld.AO is directed to consider the issue having regards to the evidences filed by the assessee. The assessee is thus directed to file all the details / evidences in support of its contention which shall be verified by the Ld.AO by granting proper opportunity of being heard in accordance with law. Accordingly, the grounds raised by assessee stands partly allowed. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in open court on 29th September, 2022.

Sd/- Sd/- (CHANDRA POOJARI) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 29th September, 2022. /MS /

Page 15 of 15 ITA No. 397/Bang/2020 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order

Assistant Registrar, ITAT, Bangalore