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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Principal Commissioner of Income Tax, Chennai-8, dated 23.03.2021 and pertains to assessment year 2015-16.
At the outset, we find that there is a delay of 330 days in appeal filed by the assessee. During the course of hearing,
:-2-: ITA. No:229 /Chny/2022 when defect was brought to the notice of the learned AR present, he has submitted that delay in filing of appeal is mainly due to lockdown imposed by the Govt. on account of spread of Covid-19 infections and in view of the Hon’ble Supreme Court suo moto Writ Petition No.3 of 2020, if the period of delay is covered within the period specified in the order of the Apex Court, then same needs to be condoned in view of specific problem faced by the public on account of Covid-19 pandemic.
The learned DR, on the other hand, fairly agreed that delay may be condoned in the interest of justice.
Having heard both sides and considered reasons given by the learned AR, we find that the Hon’ble Supreme Court in suo moto Writ Petition No.3 of 2020, has extended limitation applicable to all proceedings in respect of Courts and Tribunals across the country on account of spread of Covid-19 infections w.e.f. 15.03.2020, till further orders and said general exemption has been extended from time to time. We further noted that delay noticed by the Registry pertains to the period of general exemption provided by the Hon'ble Supreme Court extending limitation period applicable for all proceedings
:-3-: ITA. No:229 /Chny/2022 before Courts and Tribunals and thus, considering facts and circumstances of the case and also in the interest of natural justice, we condone delay in filing appeal filed by the assessee.
The assessee has raised the following grounds of appeal:
1. The order of the Principal Commissioner of Income-tax - 8, Chennai (for brevity's sake hereinafter referred as PCIT-8) under section 263 of the Income-tax Act, 1961 is contrary and bad in law, to the facts of the case, and opposed to the principles of natural justice.
2. The PCIT-8, Chennai erred in passing the order under section 263 of the Income-tax Act, 1961 ( the Act), by holding that the Assessment order passed by the Income-tax Officer, Non- Corporate Ward 12(1), Chennai (hereinafter referred to as AO) u/s. 143(3) of the Act, dated 30.11.2017 as erroneous and prejudicial to the interest of the revenue;
3. The PCIT-8, Chennai erred in holding that the AO has failed to make necessary enquiry and bring on record all facts without appreciating that the specific query was raised in the assessment proceedings on the issue under consideration of application of second proviso to 40(A)(3A) of the Act, cannot be invoked for payments below Rs. 35,000/- by a Goods Transporter as against in excess of Rs. 20,000/- applicable to other than Goods Transporters;
4. That the PCIT -8, Chennai failed to appreciate that the assessment order was neither erroneous nor prejudicial to the interest of the revenue and thus u/s. 263 is bad in law, ultra- vires in excess of and/ or in want of jurisdiction and otherwise void; Difference in the Freight income in the P&L Account:
5. That the PCIT-8, Chennai failed to appreciate the explanation provided With respect to the discounts I rebates debited to the income account on account of short realisation to the extent of Rs. 73,813/. accepted by the AO. Invoking the provisions of section 40(a)(ia):
6. That the PCIT -8, Chennai erred in invoking the provisions of section 4o(a)(ia) of the Act on the payments made towards the Railway container charges paid through the Transporter as it is :-4-: ITA. No:229 /Chny/2022 exempted from TDS provisions under section 194C consequently there cannot be any disallowance under section 40(a)(ia) of the Act, 1961; these explanations were provided at the time of scrutiny assessment and was accepted by the ld. AO at the time of completion of assessment u/s. 143(3) of the Act. Cash payments in excess of Rs. 20,000/- (whereas applicability of limit is Rs. 35,000/-) 7. That the PCIT-8, Chennai failed to appreciate that the statutory Provisions governing Where the Prescribed limit for payment of Freight charges by any Person towards Transportation charges is Rs. 35,000/- as Per the second proviso to Section 40A(3A) of the Act.
8. For these above grounds or any other grounds that may be adduced by the Appellant craves for a leave to add or modify the same at any time during the Proceedings under this appeal.”
6. The brief facts of the case are that the assessee, M/s. New Carrying Corporation is a partnership firm engaged in the business of transporter, filed its return of income for the assessment year 2015-16 on 28.09.2015, declaring a total income of Rs. 8,05,410/-. The case has been selected for complete scrutiny on various issues and the assessment has been completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) on 30.11.2017, and determined total income of Rs. 9,26,190/-, by making additions towards disallowance of cash payments in excess of prescribed limit under second proviso to section 40A(3) of the Act for Rs. 74,230/- and also adhoc disallowance on certain expenses amounting to Rs. 46,553/-.
:-5-: ITA. No:229 /Chny/2022 7. The case has been subsequently taken up for revision proceedings by the PCIT, Chennai-8 and a show cause notice u/s. 263 of the Act dated 04.04.2021 was issued and served on the assessee. The PCIT has taken up three issues for revision proceedings and according to PCIT, there is a difference in total turnover admitted by the assessee amounting to Rs. 73,813/-, for which assessee was not able to reconcile the difference and the AO has accepted the turnover declared by the assessee. The PCIT, further observed that the assessee has paid container hire charges of Rs. 38,30,626/- to Container Corporation of India without deducting tax at source u/s. 194C of the Act. The AO has allowed the expenditure even though the assessee has not deducted TDS. The PCIT has also taken up the issue of expenses debited under the head ‘hire charges for lorries’, in light of provisions of section 40A(3) of the Act and observed that the assessee has made cash payment in excess of Rs. 20,000/- in violation of provisions of section 40A(3) of the Act amounting to Rs. 1,55,15,941/-. However, the AO has allowed expenditure debited under the head hire charges without verifying the issue in light of provisions of section 40A(3) of the Act. Therefore, the PCIT, opined that for all three reasons the :-6-: ITA. No:229 /Chny/2022 assessment order passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue.
In response to show cause notice, the assessee appeared through its Authorized Representative and explained all three issues and submitted that the AO has considered difference in turnover noticed by the PCIT, and after considering relevant explanations of the assessee, has accepted the claim. The AO had also verified the issue of hire charges paid to Containers Corporation of India in light of provisions of section 194C of the Act and after considering relevant explanation of the assessee, has accepted the claim. The assessee had also explained applicability of provisions of section 40A(3) of the Act in light of second proviso, and submitted that in case of transporters payment in excess of Rs. 35,000/- in cash can only be considered, but not payment in excess of Rs.20,000/-. The AO has considered the issue and allowed the claim. Therefore, it cannot be said that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue.
The PCIT, after considering relevant submissions and also by following certain judicial precedence including the :-7-: ITA. No:229 /Chny/2022 decision of Hon’ble Supreme Court in the case of Rampyari Devi Saraogi vs DCIT, 67 ITR 84, opined that the assessment order passed by the AO is erroneous so far as it is prejudicial to the interest of the Revenue in terms of section 263 of the Act and thus, set aside the assessment order and direct the Assessing Officer to examine the issues and pass fresh assessment order in accordance with law. The relevant findings of the PCIT are as under: 8. I have carefully considered the facts of the case and the submission made by the assessee. I have also gone through the details furnished by the assessee. There is no material or evidence on record to show that the Assessing Officer applied his mind and came to a judicious conclusion in respect of the issues raised in show cause notice, which is clear from the discussion made in para 2, 3 and 4 of the order. He has passed the order in undue haste without calling for the required details and without applying mind to relevant material.
9. The Assessing Officer has passed the order without conducting necessary investigation which he was prima-facie required to do making the order an erroneous assessment warranting revision u/s 263, Reference in this regard may be made to the decision of Hon'ble ITAT (SB), Chennai , in the case of Rajalakshmi Mills Ltd Vs ITO 312 ITR(AT) 182, wherein it was held that the Commissioner of Income tax can regard order as erroneous on the ground that Assessing Officer should have made further enquiries before accepting statement made by assessee in his return. Passing an order without applying mind to relevant facts would certainly be an erroneous assessment requiring exercise or Jurisdiction u/s263. This view is supported by the decision of Hon’ble Guhati High Court in CIT vs Jawahar Bhattacharjee 341 ITR 434 (Gau (FB). In 41 ITR 286 (ker), it was held that when AO passing a cryptic order which does not contain details and claims were accepted without enquiry, the assessment order was erroneous and order u/s. 263 was justified. In case of supercloth 99 ITD 300 (Chn), it was held that accepting the issue without conduction enquiry is valid ground for invoking proceedings u/s 263. In case of the assessee, the Assessing Officer has neither applied h mind nor made any enquiry or called for all required details to come to a proper conclusion. In fact, the explanations furnished by the assessee during the present proceedings we1 never put forth during the assessment proceedings. But the Assessing officer accepted such issues without applying his mind to the relevant facts and without causing necessary enquiry. Since :-8-: ITA. No:229 /Chny/2022 the twin conditions of the order being erroneous and also being prejudicial the interests of revenue are satisfied, revisionary proceeding u/s 263 of the Act have be rightly initiated.
Thus, the conditions for invoking revisional jurisdiction u/s 263 of t e Act are satisfied and I hold that the assessment Order dated 30.11.2017 passed u/s 143(3) of the Act is to subjected to revision u/s 263. Hence, the Assessment Order is hereby set aside with a direction to examine the aspect discussed in the body of the order (supra) and pass the fresh Assessment Order within the stipulated time after providing sufficient opportunities to the assessee. The assessee has full liberty to present any material which was not submitted earlier before the Assessing Officer at the time of assessment proceedings.”
10. The Ld. Counsel for the assessee, submitted that the Ld. PCIT erred in invoking powers u/s. 263 of the Act and set aside the assessment order passed by the AO u/s. 143(3) of the Act dated 30.11.2017, without appreciating fact that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue on all three issues questioned by the PCIT in revision proceedings. The ld. Counsel for the assessee referring to letter filed before the PCIT submitted that the assessee has explained difference in turnover at Rs. 73,813/- with necessary evidences including ledger extract of one customer, where the assessee has allowed discount. If discount allowed to customer is excluded, then there is no difference in turnover reported in financial statement. The ld. Counsel for the assessee further submitted that payment made to Container Corporation of India does not come under the definition of works, because any payment to :-9-: ITA. No:229 /Chny/2022 Government or railways for carrying passengers or goods is outside the scope of provisions of section 194C of the Act. Since, Container Corporation of India is subsidiary of Indian Railways, payment made to said company partakes the nature of payment made to Indian Railway and thus, is outside the scope of provisions of section 194C of the Act. He, further submitted that, the PCIT is fundamentally wrong in considering payments for hire charges in excess of Rs.20,000/- in cash as against the prescribed limit of Rs.35,000/- as per second proviso to section 40A(3) of the Act. If we consider payment in excess of Rs. 35,000/- in cash, then the observations of the PCIT is totally incorrect and without application of mind. Therefore, he submitted that the PCIT has completely erred in invoking his jurisdiction u/s. 263 of the Act and setting aside the assessment order.
The Ld. DR, supporting the order of the PCIT submitted that the AO did not verify the issues questioned by the PCIT in right perspective of law which renders the assessment order to be erroneous and prejudicial to the interest of Revenue. The PCIT had given elaborate reasons to come to the conclusion that how and why the assessment order passed by the AO is :-10-: ITA. No:229 /Chny/2022 erroneous and thus, there is no merit in arguments taken by the ld. Counsel for the assessee.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The provisions of section 263 of the Act confers right to the PCIT to assume jurisdiction and set aside the assessment order, if the PCIT satisfies himself that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. In order to invoke jurisdiction u/s. 263 of the Act, the PCIT should explain how and why the assessment order passed by the AO is erroneous which caused prejudice to the interest of the Revenue. In this case, the PCIT has taken three issues for revision proceedings, the first and foremost issue taken by the PCIT is difference in turnover reported in financial statement for the impugned assessment year. According to the PCIT, there is a difference of Rs. 73,813/- in turnover reported by the assessee and the same was not reconciled. We find, that the assessee has explained reasons for difference in turnover of Rs. 73,813/- and as per explanation, the assessee has allowed discount to the customer by issuing debit note and if :-11-: ITA. No:229 /Chny/2022 we exclude said discount, the turnover reported in profit and loss account is matching with the turnover as per books of accounts of the assessee for the relevant assessment year. The assessee has explained difference with necessary evidence and the AO has accepted the claim of the assessee. Therefore, we are of the considered view that the PCIT has erred in assuming jurisdiction on this issue and set aside the assessment order.
Going back to second issue taken up by the PCIT, the PCIT has taken up payment made to Container Corporation of India for hire charges without deducting tax at source u/s. 194C of the Act. We find that the assessee has filed detailed submissions on the issue, when the AO has issued notice u/s. 142(1) dated 22.05.2017, along with specific questionnaire, where the AO has called for details of deduction of TDS on various expenses and a copy of Form no. 26Q filed before the Department for which the assessee has filed various details, including explanation for non-deduction of TDS for payment made to Container Corporation of India. The AO after satisfying with explanation furnished by the assessee has accepted the claim. Therefore, we are of the considered view
:-12-: ITA. No:229 /Chny/2022 that PCIT has erred in assuming jurisdiction and set aside the assessment order on this issue.
As regards the third issue taken up by the PCIT, in light of provisions of section 40A(3) of the Act, we find that the PCIT is fundamentally wrong in applying provisions of section 40A(3) of the Act and considering cash payment in excess of Rs. 20,000/-, even though second proviso to section 40A(3) of the Act specifies that in case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-section (3) to section 40A shall have effect as if for the words twenty thousand rupees, the words thirty five thousand rupees has been substituted, which means in case of payment made by transport contractor for hire, any payment in excess of Rs. 35,000/- in cash can only be considered for disallowance u/s. 40A(3) of the Act. In this case, the PCIT has considered cash payment in excess of Rs. 20,000/- and observed that the assessee has made total cash payments of Rs. 1,55,15,941/-, ignoring second proviso to section 40A(3) of the Act. Therefore, we are of the considered view that the assumption of jurisdiction by the PCIT on this issue is fundamentally wrong and also fails. Moreover, the issue of payments in cash
:-13-: ITA. No:229 /Chny/2022 in excess of prescribed limit under the provisions of section 40A(3) of the Act has been considered by the Assessing Officer in light of second proviso to section 40A(3) of the Act and has disallowed cash payments in excess of prescribed limit, which is evident from para 4 of assessment order dated 30.11.2017. Therefore, once again assumption of jurisdiction on very same issue by the PCIT is incorrect.
The assessee has relied upon various judicial precedence in support of its arguments and relevant case laws relied upon by the Counsel for the assessee are reproduced as under: 11. The Hon'ble Allahabad High Court, has held in the case of Meerut Roller Flour Mills (P) Ltd Vs. Commissioner of Income-tax, in 110 taxmann.com 170, that "the Ld. AO having raised number of queries from the assessee, which was also replied by it along with documentary evidences in respect of each query, the Assessment Order would not render the same as erroneous and prejudicial to the interest of revenue, under the CIT, brings on record to show that the order was erroneous and without application of mind or incorrect application of law, except when CIT has certain materials and document as evidence. The revision u/s. 263 is unsustainable in such case. 12.Madras High Court has held in the case of Venkata Krishna Rice Co., vs CIT 30 Taxman 528 (Madras) that where the it was referred as an extraordinary revisional power and is sui generis, in nature and not to be invoked as jurisdictional corrective or as a review of subordinate' s order in exercise of supervisory power. It has to be invoked only for setting right distortions and prejudices to the revenue, upon a unique conception has to be understood in the context of interests of revenue administration and to keep the morale of the officers manning the revenue administration.
:-14-: ITA. No:229 /Chny/2022 13.Thus, the present Appeal to Quash is filed in order to address the Two issues (i) Jurisdiction under section 263 by the Pr. CIT- 8, Chennai; & (ii) Wrong application of law by the Pr. CIT- 8, Chennai contrary to the Assessment order which is as per the provisions of Income-tax Act, 1961.”
In this view of the matter and considering facts and circumstances of the case, we are of the considered view that the assessment order passed by the AO u/s. 143(3) of the Act dated 30.11.2017 is neither erroneous nor prejudicial to the interest of the Revenue and thus, in our considered view, assumption of jurisdiction by the PCIT under provisions of section 263 of the Act is totally uncalled for. Therefore, we quashed order passed by the PCIT u/s. 263 of the Act.