Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
This appeal by the assessee is directed against the order of learned CIT(A) dated 29.4.2021 pertaining to A.Y. 2017-18.
The grounds of appeal raised read as under :- 1) Adjustments beyond powers under section 143(1). 2) Invalid proceedings under section 143(1) and violation of principal of natural justice. 3) Addition of Rs. 30 lakhs under income from other sources. 4) Prize money of Rs. 30,00,000 received by appellant cannot be construed as winning from game under section 115BB r.w.s. 56(2)(ib) r.w.s. 2(24)(ix) and cannot be taxed at a flat rate of tax @ 30.9% on the gross amount. 5) Double taxation
Brief facts of the case are that in this case adjustment was done under section 143(1). Pursuant to the same assessee filed appeal before learned CIT(A). Learned CIT(A) noted the facts of the case and assessee’s submission as under :- “Assessee has availed of a franchiseeship of Team Puneri Paltan which is a participating team in the Pro Kabaddi League organized by Mashal Sports Private Limited. During FY 2016 17 AY 2017 18 it received prize money of Rs 3000000 being the third placed team of the event. The same is accounted and shown under the Revenue from Operations as Prize Money. The same is
2 Insurekot Sports Pvt. Ltd.
disclosed in Note 15 of the audited financials. TDS was deducted under sec 194B on the said prize money by the payee at the rate of 30.9 percentage. The corresponding entry is appearing at Sr No 4 1 of the Form 26AS having transaction date as 4th Oct 2016. Relevant extract of the Audited Profit and Loss account along with relevant notes and Form 26AS is attached to this certificate as Annexure 1 2 and 3. Since Assessee is in the business of franchiseeship the receipt of Rs 3000000 is offered as Business Income and has been shown under Revenue from Operations in the column 1A iii of Part A P and L. Relevant extract of the ITR 6 is attached herewith as Annexure 4. The Assessee accordingly filed the Return of Income on 27th September 2017 vide Ack. No.223937191270917 declaring returned total income of Rs.NIL.
A communication from AO under sec 143(1)(a)(vi) dated 18th May 2018 was received by Assessee wherein it was stated that there is inconsistency between the lottery income under income from other source head in the return and Form 26AS to the extent of Rs. 3000000. Copy of the said communication is attached as Annexure 5. Assessee replied to the said communication stating that it does not agree with the above mentioned proposed addition and submitted that Assessee is franchisee of Team Puneri Paltan and this prize money is shown in ITR as business income. Copy of the said response is attached as Annexure 6. However the above response was not appreciated by AO and another communication for the proposed adjustment under sec 143(1)(a)(vi) dated 26th December 2018 was sent by CPC. Copy of the said communication is attached as Annexure 7.
A detailed response was filed by the Assessee on 24th January 2019 explaining all facts with all supporting and a certificate from Chartered Accountant confirming the fact that the amount of Rs 3000000 is already offered to tax as business income. Copy of the online response along with certificate from Chartered Accountant submitted on 24th January 2019 is attached herewith as Annexure 8 and Annexure 9. It was specifically submitted that the receipt of Rs 3000000 is in the nature of business income and is duly offered to tax. However the above response was not considered by the AO and the return was processed and intimation under section 143 1 dated 29th March 2019 was issued making following adjustments to the returned income and calculating additional tax liability at special rate of 30 percentage plus education cess. 1. Amount of Rs 3000000 was added as Income from other sources considering chargeable to tax at special rate. 2. Tax liability was calculated at 30 percentage plus education cess on the said Rs 3000000. 3. TDS credit to the extent of Rs 69740 was not granted.
Against the said intimation under section 143(1), Assessee filed appeal before learned CIT(A).
Considering the assessee’s submission learned CIT(A) has held as under:-
3 Insurekot Sports Pvt. Ltd.
“These grounds agitate the treatment of Rs 30,00,000/-, as income from other sources by reading it u/s 115BB, rw section 56(2)(ib) and section 2(24)(ix) of the Act. The appellant has agitated this treatment on grounds of merit as well as for the reason that this adjustment could not have been made u/s 143(1) of the Act. The grounds, being related, are being disposed as one.
Before going into the merits of making this adjustment u/s 143(1), I will go onto the substantive merits of the appellant's case. What is undisputed is that the appellant has entered into a tournament of the game of Kabaddi and as prize money for obtaining the third place, received the impugned amount. This amount has admittedly been shown by him as income from business and offered for tax.
It is trite law that it is not enough that some income earned by an assesses is offered for tax; it is equally important as per specifications of law that this income should be offered under the correct head. Therefore, just the fact that this income was offered by the appellant as business income would not preclude the Department from examining if this offer was made under the correct head.
Coming to whether the said income was to be taxed under the head business or as done by the AO, it is instructive to read the bare section 115BB in this context. This is a specific section that over-rides the more general provisions of the Act. Whenever there is a specific provision it will have the effect of over-riding the more general provisions of the Act, since this special provision was created for a specific purpose. .
In this case, the said section reads that income from "...game of any sort..." would be chargeable as per provisions of section 115BB. The phrase "any sort" is one of very wide import and takes within its ambit games of Kabaddi, organized or unorganized, whether in the form of single games or heats or leagues. It is not the case of the appellant that the winnings were from any other source than the winnings of the game of Kabaddi. Once it is admitted that this is a fact then the application of section 115BB rw section 56(2)(ib) and 2(24)((ix) is automatic where once again the same phraseology has been used to stipulate that the said amounts would be treated as income and that also income from other sources.
Coming to section 58(4), we find that this stipulates that "no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income..." and then the income specified I this subsection is once again income from "any game".
Therefore, it is clear that this income cannot be treated as income from business and that no deduction or allowance can be made against the earning of this income. Just because the earning of this type of income has become an organized activity does not change the nature of this-income. Therefore substantively, there is nothing wrong with the action of the AO.
4 Insurekot Sports Pvt. Ltd.
Coming to whether this action could have been performed at the stage of 143(1), we find that the fact of earning of this income and its nature was a matter apparent from record, that is, from the time of filing of the income tax return. The fact that this was something that was prima facie apparent from the record as it existed before the AO means that the adjustment can be made at the 143(1) stage itself. There, therefore, is no defect in the action and it stands confirmed.
Ground 5
This relates to the non-grant of credit for TDS by the AO. The AO is directed to verify the authenticity of this TDS by examining the TDS certificates and after checking from his own access to 26AS and if found to be correct then the amount qualifying for credit of TDS should be given. The ground is allowed for statistical purposes subject to verification by the AO.”
Against the above order assessee has filed appeal before the ITAT. I have heard both the parties and perused the records. I note that in this case learned CIT(A) has disposed off the assessee’s preliminary objection to the legality of prima facie adjustment after adjudicating upon the merits of the case by devoting two pages and referring to four sections from Income Tax laws. Before proceeding further it may be gainful to refer provisions contained in section 143(1) of the I.T.Act :-
(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; [***] (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; [(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80- IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or
5 Insurekot Sports Pvt. Ltd.
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:
Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:]
[Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;]
(b) the tax [, interest and fee], if any, shall be computed on the basis of the total income computed under clause (a); (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax [interest and fee], if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax [, interest or fee]; (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and (e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:
Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax [interest or fee] is payable by, or no refund is due to, him:
Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.
Explanation.—For the purposes of this sub-section,— (a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or
6 Insurekot Sports Pvt. Ltd.
(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; (b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).
I note in this case in processing and adjustment under section 143(1) has been done on account of a sum of Rs. 30,00,000/- received by the assessee. The reasoning stated for the adjustment in the notice to the assessee was that there was mismatch between Form 26AS information and the return filed by the assessee. The assessee has duly explained to the Assessing Officer pursuant to notice in this regard that the assessee has offered the said amount as business income and it has been shown as business income in the profit and loss account. Despite the explanation again 143(1) communication was sent to the assessee. The assessee gave a detailed response as noted above. Without disposing off or even discussing the assessee’s objection and submission, 143(1) adjustment was done.
I note that a perusal of section 143(1)(a) shows that adjustment can be done on six reasons mentioned therein. Though no specific reason has been mentioned prima facie the adjustment is on account of section 143(1)(a(vi) of the Act. This limb of the Act prescribe for the addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return. I note that the assessee’ case cannot fall in this sub-section as assessee has duly included the same in the profit and loss account and explained the same to the Assessing Officer. Hence any prima facie inference in this regard is clearly wrong. Only another clause in which this adjustment can be said to have been falling is an incorrect claim apparent from any information in the return. As noted above no information whatsoever has been given by the Assessing Officer as to under what limb he is adding the same. Even for argument sake it is noted that it is done under the clause for an incorrect claim how the same is incorrect in the light of
7 Insurekot Sports Pvt. Ltd.
information provided is not at all referred by revenue authorities. The explanation (a) dealing with incorrect claim provides as under : (a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;
No explanation is there by the revenue authorities as to how it is an incorrect claim. Even learned CIT(A) while disposing the assessee’s objection has not dealt with the objection of the assessee that the case does not fall under adjustment envisaged under section 143(1)(a) of the Act. Learned CIT(A) has dealt with first the merits of the case and has devoted two pages in deciding the merits of the case against the assessee by referring to four sections of Income Tax laws as noted above. Thereafter he has rejected the assessee’s preliminary objection. By no stretch of imagination it can be said that it is a prima facie or apparent error which has been rectified under section 143(1) read with explanation (a). Hence, learned CIT(A)’s observation that this was something that was prima facie apparent from the record is absolutely inconsistent with the facts on record. He has contradicted himslef by devoting two pages and mentioning four sections by reference to which he has come to the opinion that the assessee’s claim was apparent error. In my considered opinion by no stretch of imagination assessee’ case can be said to be falling under clause of apparent error which is liable to be rectified/adjusted under section 143(1)(a) of the Act read with explanation (a) therein. Moreover, assessee’s ground that assessee’s objections and explanation were duly mentioned and given in response to notice under section 143(1)(a) of the Act and have not at all being disposed off or even referred/discussed are also justified. This is gross violation of principles of natural justice not sustainable in law. As held by Hon'ble Apex Court even administrative orders have to be
8 Insurekot Sports Pvt. Ltd.
consistent to the Rules of natural justice. Assessee has a right to know as to why his claim is rejected or an addition is being made. After filing the objection and explanation before the Assessing Officer, a non-speaking adjustment under section 143(1)(a) of the Act falls under this precise category and hence it is not sustainable in law. For all these reasons in my considered opinion adjustment under section 143(1)(a) is not sustainable and same is liable to be set aside. Since the preliminary objection is being upheld adjudication on merits is only of academic interest, hence, the same is being not gone into.
In the result, appeal by the assessee stands allowed. 10.
Order pronounced in the open court on 25.3.2022.
Sd/- (SHAMIM YAHYA) ACCOUNTANT MEMBER
Mumbai; Dated : 25/03/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai