Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “H” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL “H” Bench, Mumbai Before Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
I.T.A. No.744/Mum/2021 (Assessment Year 2015-16)
Vs. PCIT-20 HDB Employees Welfare Trust 1, Sandoz House, Dr. Annie 418, 4th Floor Besant Road, Worli Piramal Chamber Mumbai-400 018 Lalbaug, Parel Mumbai-400 012 PAN : AAATH6358N
(Appellant) (Respondent)
Assessee by Shri Niraj Sheth Department by Smt. Leena Srivastava,CIT-DR Date of Hearing 20.01.2022 Date of Pronouncement 18.04.2022
O R D E R Per Shamim Yahya (AM) :- This appeal by the assessee is directed against the order of the Principal Commissioner of Income Tax-20, Mumbai (‘Pr.CIT for short) passed under section 263 of the I.T.Act, 1961, dated 12.03.2021 and pertains to the assessment year (A.Y.) 2015-16.
Grounds of appeal read as under:- 1. The learned Pr. CIT - 20 (Principal Commissioner of Income Tax), Mumbai erred in law and on facts, in passing order u/s. 263 of The Income Tax Act, 1961 (The ITA, 1961) without appreciating that the scrutiny assessment order dated 20/12/2017 was neither erroneous nor prejudicial to the interest of the revenue.
Learned Pr. CIT - 20, Mumbai erred in law and on facts in treating the Assessment Order u/s. 143 (3) of The ITA, 1961 as being erroneous and prejudicial to the revenue u/s. 263 of The ITA, 1961 without appreciating that, the learned AO has passed the Assessment Order u/s. 143(3} of The ITA, 1961, after application of mind & on due inquiries and after requisite verification.
Learned Pr. CIT - 20, Mumbai erred in law and on facts in treating the Assessment Order u/s. 143(3) of The ITA, 1961 as being erroneous prejudicial to the revenue u/s. 263 of The ITA, 1961 without appreciating that the view taken by the then Learned
2 ITA No.744/Mum/2019
Assessing Officer in allowing expense deductions was a plausible view, and the same was based upon past years orders; and as such, has reached a quietus. 4. The Learned Pr. CIT - 20, Mumbai has erred in considering the stand taken by the appellant in the recent Assessment Years, as one of the base for revising the Assessment Order under question u/s. 263 of The ITA, 1961 and also erred In not appreciating that the dispute being ended under VSVS (Vivad Se Vishwas Scheme) could not be construed that the Appellant has acquiesced in the decision on the disputed issue by settling the dispute (Explanation to Section 5(3) of Vivad Se Vishwas Act, 2020). 5. The Learned Pr. CIT - 20, Mumbai has erred in passing the Order u/s. 263 of The ITA, 1961 without granting enough opportunity to the Appellant to make elaborate submission consisting of various case laws and Explanatory Memorandum of the Government regarding the changing aspects of the scope of section 263 of The ITA, 1961 as requested vide submission dated 02/03/2021.
Brief facts of the case are that in this case ld. PCIT noted that the assessee filed return of income disclosing income from dividend of Rs. 2,71,09,463/- and interest on FD in Banks of Rs. 4,18,55,375/- and claimed expenses of Rs. 5,24,62,652/-. That the same was allowed by AO by accepting the Return of Income disclosing loss of Rs. 1,06,07,276/-. That since the expenses are not related to the interest income and so the same were not to be allowed u/s. 57 and at the same time the dividend income claimed as exemption also to be verified. That therefore, the AO has not examined the issues involved in proper perspective which is evident from the above.
Therefore, ld. PCIT issued notice to the assessee is as under;-
“On perusal of records, it is seen that your Trust had filed Return of Income for A. Y.2015-16 on 26,08.2015 declaring total income of Rs. Nil and thereafter the case was selected for scrutiny and assessment u/s 143(3) of the Income Tax Act, 1961 was completed on 20. 12.2017 assessing total income at Rs. Nil. During this year under consideration, As per P&L Statement, source of income comprised of income from Dividend of Rs.2,71 ,09,463/-, Income from Interest on FD and Bank of Rs.4,18,55,375/- aggregating to Rs.6,89,64,838/-. And shown net loss of Rs. 1,06,07, 2767-from interest on FD & Bank after claiming expenses amounting to Rs.5,24,62,652/-.
3 ITA No.744/Mum/2019
Your main source of income is dividend through investment in shares and bonds. So the whole expenses of the trust are attributable to dividend and capital gain which is claimed under income from other sources. The dividend income is in the nature of exempt income for which Trust has not disallowed any expenses. Therefore the deduction u/s 57 of the Income Tax Act, 1961, it is compulsory that the expenditure should have a direct nexus with the income earned u/s 56. As per section 57(iii), deductions are allowed only if laid out or expended wholly and exclusively for the purpose of making or earning such income. Here the nature of expenses shows that it has no relation in earning interest income which is fixed in nature. Hence the expenses of Rs. 5,23,84,000/- should have to be disallowed and added back to the income as nature of expenses is not directly related to earn interest income. Hence the order u/s. 143(3) passed by the AO dated 20.12.2017 was erroneous and prejudicial to the revenue within the meaning of section 263 of the Income Tax Act, 1961. Accordingly, an opportunity of hearing is being given to you. In case you have any objection in this regard, you may file the same on or before 19.02.2021. Your case is fixed for hearing on 19.02.2021 at 2.45 PM in the chamber of the undersigned.”
In response to the above, assessee submitted that the trust functions and activities have remained the same since long. No adverse inference has been drawn earlier. That this year also the functions remained the same and that assessment was framed after thorough enquiry. Hence, it was claimed that since no radical change in respect of assessee’s trust for its activity have taken place, there is no provision for revision proceedings. The ld. PCIT was not satisfied, he held as under:-
“In this case, the assessee earned income from dividend and interest income from banks. The expenses claimed by the assessee were Medical Grants of Rs. 3,80,33,548/-other grants of Rs. 34,80,452 and J&K flood affected employees of Rs.1,08,70,000/- which was not the expenditure expended wholly and exclusively for the purpose of making earning such income on dividend and interest income from banks.
As per the section 57(iii) "any other expenditure(not being in the nature of capital expended wholly and exclusively for the purpose of making or earning such income.” To be allowed as deduction u/s. 57
4 ITA No.744/Mum/2019
Therefore, these expenses claimed by the assessee were not covered u/s. 57(iii) hence not to be allowed. Further more for the A.Y2017-18 in the assessment of the assessee was completed by the Assessing Officer disallowing the expenses claimed by the assessee and the same is in appeal and the assessee opted VSVS and ended the dispute. It is informed further during the hearing that for subsequent assessment years also the assessee itself not claimed these expenses and filed return of income disclosing total income under other sources. In view of the above, the assessment order completed u/s 143(3) of the Income Tax Act, 1961 dated 20.12.2017 is set aside denovo as per the provisions of Section 263 of the Income Tax Act, 1961 as the same is erroneous in so far as it is prejudicial to the interest of revenue. Hence, the AO is directed to frame the assessment a fresh after disallowing the entire expenses claimed by the assessee since these are not allowable u/s 57(iii).”
Against the above order, assessee has filed appeal.
We have heard both the parties and perused the records. Ld. Counsel of the assessee reiterated the submissions made before the ld. PCIT. He submitted AO has made due enquiry. In this case, he referred to the notice issued by the AO u/s. 142(1) furnished at page No. 79 of the paper book, wherein specifically in point No. 10 following was asked a summarized as under:-
“ Prove that the expenditure deducted u/s. 57 in respect of the income credited under the head “ income from other sources” is true and correct. Provide documentary proof in support of the claim. Substantiate that the expenditure is directly attributable to the income from other sources for the year” 8. The ld. Counsel of the assessee submitted that assessee has furnished detailed reply submitted in page 83 to 89
Furthermore, in this case ld. Counsel referred to the decision of Hon’ble Delhi High Court in the case of DDIT(E) vs Petroleum Sports Psromotion Board 362 ITR 235
5 ITA No.744/Mum/2019
Per contra, ld. DR relied upon the order of the ld.CIT(A).
Upon careful consideration, we note that AO has passed the following order in this case:- “The assessee is an employees welfare trust set up for the benefit of the employees of HDFC Bank Ltd. After discussion with the assessee’s representatives, the returned income filed by the assessee is accepted. After considering the written submission, the income of the assessee is accepted as it is, Returned income- NIL Assessed Income- NIL Assessed as above. Give credit for prepaid taxes as per evidence on record after verification and issue demand notice accordingly after charging interest us. 234A, B&C. ITNS 150 issued herewith forms part of the assessment order.”
The ld.CIT has passed an order u/s. 263 of the Act. Noting that the order is erroneous inasmuch as, expenses claimed by the assessee are not related to the income of the assessee, which are from dividend and interest. As such, it has been the view of ld.CIT that the same was not to be allowed. The defence of the assessee is that assessee’s activities have remained the same since long and no adverse inference has not been taken in earlier years. So no adverse inference should be taken this year.
In this regard, we note that, it is settled law that there is no res-judicata applicable to income tax proceeding. Hence, if in earlier years something has not been examined and allowed as such, it cannot act as estoppel for the revenue on the issue. As regards the assessee’s plea that AO has examined the issue and has given notice on the matter and thereafter taken a view, we are of the considered opinion that we cannot agree with the above proposition as there is no whisper in the order of the AO in this regard. It is settled law that if the AO just keeps the assessee’s papers on record without any application of mind on the same, the same cannot act as estopple for the ld.CIT to exercise power u/s. 263 of the I.T.Act. The ld.CIT has duly
6 ITA No.744/Mum/2019
examined the nature of expenses. The expenses are related to medical grants of Rs. 3,80,33,548/- and other grants of Rs. 34,80,452/- and J&K flood affected employees of Rs. 1,08,70,000/-. The ld.CIT is correct in holding that these expenses cannot be said to be expense wholly and exclusively incurred for the purpose of earning income on dividend and interest income from banks. Provision u/s. 57(iii) are duly applicable on the facts of the case. Though AO has not made any observation, whatsoever, even for arguments sake if it is accepted that AO had adopted a view, the same is patently in contravention of the sanguine provision of law in this regard. So it cannot be said that AO has adopted one of the possible views. Moreover the ld.CIT has also given a finding that for AY 2017-18 facts are similar and in this case, assessee opted for VSV Scheme to settle the dispute. Subsequent year also, the assessee did not claim these expenses and filed return of income disclosing total income under other sources. We find that above findings have not been disputed by the assessee. The crux of the assessee’s submission that since in the past this wrong system had not been objected, the same should be allowed to be continued is thus rejected. Furthermore, the system adopted by the assessee is in contravention of laws and as we have noted the fact that assessee itself has subsequently discontinued this system of claiming the expenses which are totally unrelated to the earning of interest income and exempt dividend income. Hence, we do not find any reason to interfere with the order of ld.CIT. Hence we uphold the same. 14. In the result, this appeal by the assessee stands dismissed. Pronounced in the open court on 18.04.2022.
Sd/- Sd/- (AMARJIT SINGH) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 18/04/2022 Thirumalesh, Sr.PS Copy of the Order forwarded to : The Appellant
7 ITA No.744/Mum/2019
The Respondent 2. The CIT(A) 3. CIT 4. DR, ITAT, Mumbai 5. Guard File.
BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai