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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
PER PRASHANT MAHARISHI, AM:
This appeal is filed by ICICI Bank Ltd (The appellant/ assessee) against the order passed by the Pr. Commissioner of Income-tax, Mumbai-2, [ The ld PCIT ] under section 263 of the Income-tax Act [The Act] for Assessment Year 2011-12 holding that assessment order passed by The Assistant Commissioner of Income tax Circle -2 (3) (2), Mumbai [ the ld AO ] under section 143(3) read with section 147 of the Act dated 3rd December, 2018 is erroneous and prejudicial to the interest of the Revenue.
“Being aggrieved by the order No. ITBA/REV/F/REV5/202021/1032093948(1) dated March 31, 2021 issued by the Pr. Commissioner of Income-tax 2, Mumbai [hereinafter called the Pr.CIT] under section 263 of the Income-tax Act, 1961 [hereinafter called the Act] and communicated to the Appellant on the same day, the Appellant appeals against and on the following amongst other grounds which are without prejudice to each other.
Setting aside of order under section 263 of the Act
1.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in passing an order under section 263 setting aside the assessment order dated December 31, 2018 passed under section 143(3) r.w.s. 147 of the Act on the ground that the Assessing Officer in not examining the following issues has rendered the order as erroneous and prejudicial to the interest of the revenue:
(a) Re-possessed vehicles to be treated as bad debts and not as a business loss
(b) Non disallowance of unpaid leave encashment
(C) Deduction claimed under section 36(1)(viii)
ICICI Limited in ITA No.6375/2010 dated February 8, 2012 for AY 1996-97 upholding the Mumbai Tribunal order in setting aside the order passed under section 263 of the Act as it was barred by limitation.
1.3 The Pr, CIT erred in not considering the alternative plea raised by the Appellant that since the issue pertaining to deduction under section 36(1)(viii) of the Act is a subject matter of appeal before the CIT(A) 6, Mumbai filed by the Bank against the order under section 143(3) r.w.s 147 proposed to be revised, the same would not come within the purview of revision as per provisions of Explanation 1 to section 263(1) of the Act.
2.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in holding that the loss on repossessed vehicles claimed as a business loss by the Appellant is nothing but a part of bad debts and since this loss along with other bad debts claimed under section 36(1)(vii) of the Act does not exceed the credit balance under section 36(1)(viia) allowed in the preceding assessment year 2010-11, the same is not allowable and is required to be added to the total income.
2.2 The Pr. CIT erred in setting aside the assessment order with a direction to examine the issue as per law and frame a fresh assessment on the same despite the same having been examined during the original assessment proceedings and without appreciating that the loss on repossessed vehicles has been claimed and allowed as a business loss in the preceding assessment years 2009-10 and 2010-11.
2.3 The Pr. CIT erred in not appreciating the fact that even if the loss on sale of repossessed assets is to be treated as a bad debt, the order would not be erroneous nor prejudicial to the interests of the revenue as the bad debts including this loss far exceeds the credit balance under section 36(1)(viia) of the Act allowed in the previous assessment year 2010-11.
3.1 On the facts and circumstances of the case and in law, the Pr. CIT erred in not appreciating that out of the unpaid leave encashment of Rs.108,02,83,033, only Rs.27,82,79,269 which was debited to the P&L account was disallowed by the Appellant in the return of income and the balance amount of Rs.80,20,03,764 which had not been routed through P&L account was not claimed by the Appellant and hence the question of disallowing the same does not arise.
Deduction of Special Reserve under section 36(1)(viii) of the Act
4.1 The Pr. CIT erred on facts and circumstances of the case and in law, in holding that it is the gross lease rentals of Rs. 98,43,12,859 credited to the P&L A/c as against Rs.89,85,60,025 being the net amount credited to P&L which ought to be reduced in working out the finance income for calculating the deduction under section 36(1)(viii) of the Act and the Assessing Officer by not considering the correct figure has resulted in the assessment order being erroneous in so far as prejudicial to the interest of revenue within the meaning of provisions of section 263 of the Act.
4.2 The Pr. CIT ought to have appreciated that interest on Income-tax refund of Rs.164,63,00,000 which had inadvertently not been reduced by the Assessing Officer whilst working out the finance
Subsequently, case of assessee was reopened by issuing notice under section 147 of the Act on 28th
Subsequently, on perusal of the record, The Ld PCIT, Mumbai issued show cause notice under section 263 of the Act stating that the order passed on 31st December, 2018 is erroneous and prejudicial to the interest of the Revenue on four different grounds as under:-
“(i) On verification of records it is observed that in the computation of income the assessee had claimed business loss of Rs. 12,82,53,340/- which was accepted by the department. The said loss interalia included Repossessed vehicles of Rs. 8,51,14,124/-. This loss is nothing but part of bad debt only as held in AY 2010-11. As this loss along with other bad debts of Rs. 556,05,50,638/- does not exceed the credit balance allowed u/s. 36(1)(viia) of the Act allowed in AY 2010-11, the loss was not allowable and required to be added to total income of the assessee. A.O. has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018
(ii) It is also observed that Annexure J clause 21 (1)(B) of Tax Audit Report (TAR) in 3 CD From that there was unpaid leave encashment of Rs. 108,02,83,033/- which was outstanding on date of reporting of TAR. Further no document available on records which shows that the said unpaid amount was paid on or before due date of filing of return. However from computation of income of the assessee it is revealed that the assessee had disallowed only Re. 27,82,79,269/ on account unpaid leave encashment which was accepted. As the deduction on account of leave encashment is available only on actual payment, the entire unpaid amount was required to be disallowed. A.O. has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue.
(iii) It is also observed that during the assessment proceeding on the issue of disallowance of depreciation on leased assets, the assessee vide letter dated 25.02.2015 submitted that it has credited lease rental income of Rs. 98,43,12,859/- in the P & L Account. Thus for computing long term finance business income the lease income to the extent of Rs. 98,43,12,859/- was required to be reduced from total business income of the assessee instead of Rs.
(iv) Further it was also observed that during the previous year the assessee had interest income of Rs. 164,63,00,000/- on account of interest on income tax relief included in 'others' under the head schedule 13 Interest Earned' to the P & L account. This income being income from non finance income, it should also have been reduced from the total business income of the assessee to arrive at the business income from long term finance business activity eligible for deduction u/s. 36(1)(viii) of the Act. However, this was not done , leading to excess allowance of deduction by Rs. 14,58,62,181/-. A.O. has failed to examine these facts. Failure of the assessing officer to examine the same has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue.” The assessee submitted its reply on 26th March 2021 06. stating as under:-
“3. In response, the assessee has filed written submission in ITBA portal, vide letter dated 26th
"We give below our submission with respect to each of the issues in respect of which your Honour has issued the captioned notice.
Loss on sale of Re-possessed vehicles
1 The Bank had explained its claim of business loss on sale of re-possessed assets of Rs. 8,51,14,124 in detail during the course of assessment proceedings vide letter dated December 12, 2015, which is reproduced below:
1.2 The Bank gives loans for purchase of two wheelers as well as consumer vehicles, farm equipments and also for consumer durables to various parties comprising of mainly individuals. The said loan is given against hypothecation of the said asset to the Bank. The loan is generally given for a period of 3 to 5 years and EMIs are accordingly fixed over the tenure of the loan.
In the event the bank is unable to recover its dues inspite of follow-ups, it finally resorts to last step that is possession and disposal of the vehicle. The outstanding loan amount as on the date of repossession along with the outstanding EMIs represent the total amount due from the borrower. On sale of the asset, the overdue EMI's are first adjusted against the sale proceeds and the balance of
1.3 As per the show cause notice, the contention of your Honour is that the loss on sale of repossessed assets amounting to Rs.8.51,14, 124 is nothing but a part of bad debts as held by the Assessing Officer in the preceding assessment year 2010-11 and hence this loss to alongwith the above mentioned bad debts claimed is not allowable as it does not exceed the credit balance allowed under section 36(1)(viia). As the same was not examined by the Assessing Officer it has rendered the assessment order dated December 31, 2018 erroneous in so far as prejudicial to the interests of the Revenue.
1.4 We respectfully submit that the claim of loss on sale of repossessed assets as a business loss has been examined by the Assessing Officer which is evident from the assessment order as he has not accepted the revised figure of gain on non-banking assets by placing reliance on the decision of Supreme Court in the case of Goetze India Limited vs. CIT (284 ITR 323). The same however has been allowed in appeal by the CIT(A), Mumbai.
1.5 Further, the loss on sale of repossessed assets has been treated as a business loss by the Assessing Officer in the preceding assessment years 2009-10 and 2010-11 and allowed by the CIT(A) in the
Without prejudice to the aforesaid, even if the loss on sale of repossessed assets is to be treated as a bad debt, the order would not be erroneous nor prejudicial to the interests of the revenue as the bad debts including this loss far exceeds the credit balance under section 36(1)(viia) of the Act allowed in the previous assessment year 2010-11. This is evident from the order dated December 31, 2018 passed under section 143(3) r.w.s 147 for the aforesaid assessment year which your Honour proposes to revise. The table hereunder demonstrates the same:
Particulars As Allowed in As proposed in show assessment cause notice Amount in ₹ Amount in ₹ Bad Debts 556,05,50,639 556,05,50,639 Add: Loss on Sale of re- 8,51,14,124 possessed assets Less: credit balance under 423,76,60,958 423,76,60,958 section 36(1)(viia) as per order
Unpaid leave encashment.
2.1 The Bank of Rajasthan Ltd. was amalgamated with ICICI Bank with effect from August 12, 2010 in terms of the Scheme of Amalgamation approved by the Reserve Bank of India, vide its order dated August 12, 2010 under sub section (4) of section 44A of the Banking Regulation Act, 1949. In pursuance to
2.2 As per the show cause notice it/s alleged that as per Annexure J to clause 21(1)(B) of the Tax Audit Report (TAR) there was unpaid leave encashment of Rs. 108,02,83,833 outstanding on the date of the TAR but the Bank has disallowed only Rs.27,82,79,269 out of the unpaid leave encashment instead of disallowing the entire amount. As the same was not examined by the Assessing Officer it has rendered the assessment order dated December 31, 2018 erroneous in so far as prejudicial to the interests of the Revenue.
2.3 We respectfully submit that the Bank as per note 4 of Annexure J to clause 21(1)(B) of the TAR has explained that the closing unpaid liability of the leave encashment includes liability of Rs. 78,93,33,682 which has been transferred from Bank of Rajasthan Ltd. and an additional liability of Rs. 1,26,70,082 on account of revaluation has been created through the amalgamation reserve aggregating to Rs.80,20,03,764. Since the said amount of Rs. 80,20,03,764 has not been routed through P&L account, the Bank in the computation of income has disallowed only the sum of Rs.27,82,79,269 which was debited to the P&L account on account of unpaid
2.4 In view of the aforesaid the unpaid leave encashment of Rs.27,82,79,269 has been correctly disallowed by the Bank and there has been no omission resulting in underassessment of income on the said issue.
2.5 Without prejudice to the aforesaid, we respectfully submit that in respect of the above mentioned issue on which revision under section 263 of the Act is sought to be exercised, is on issues which were covered in the original assessment order dated March 12, 2013 passed under section 143(3) r.w.s 144C of the Act and hence the period of limitation as given in section 263(2) of the Act ought to be reckoned from the date of the original assessment order and not the reassessment order. This has been held by the Bombay High Court in the Bank's own merged entity case lClCl Limited vide order in ITA No. 6375/2010 dated February 8, 2012 for AY 1996-97 following the Supreme Court decision in the case of Alagendran Finance (2007) [293 ITR 1]. Hence the proposed revision on these issues is time barred by limitation under section 263(2) of the Act.
Deduction under section 36(1)(viii)
1 With respect to the deduction under section 36(1) (viii) of the Act, the Assessing Officer in para
3.2 As per the show cause notice your Honour's first observation is that the lease income to be reduced from the total business income should be Rs. 98,43,12,859 credited to the P&L A/c as against Rs. 89,85,60,025 taken by the Assessing Officer in the assessment order. In this connection, we submit that the amount of Rs.89,85,60,025 represents the net amount credited to P&L which includes lease rental income of Rs.98,43,12,859 and interest on arrears of lease rentals of Rs.689,31,400 less of interest expenses incurred of Rs. 15,46,84,234. Hence the amount of Rs.89,85,60,025 reduced as lease income is correct.
3.3 Your Honour's second observation is that interest on Income-tax refund of Rs. 164,63,00,000 included in Schedule 13 has not been reduced the same being non-finance income. With respect to this observation, we submit that interest on Income-tax refund of Rs. 164,63,00,000 has inadvertently not being reduced in
3.4 Without prejudice to the aforesaid, we respectfully submit that as per Explanation I to section 263(1) of the Act, the powers of the Principal Commissioner/Commissioner to revise an order under section 263 of the Act can be only restricted to matters as had not been considered or decided in appeal. We submit that the above-mentioned issue regarding deduction claimed under section 36(1)(vii) is the subject matter of appeal before the CIT(A)-6, Mumbai filed by the Bank against the order under section 143(3) r.w.s 147 for the aforesaid assessment year which your Honour proposes to revise and hence will not come within the purview of revision under section 263.
We further submit that in order to invoke provisions of section 263 the order sought to be revised should be both erroneous and prejudicial to the interest of the revenue. It has been held by Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax [243 ITR 83 (SC), CIT v
We reiterate that the order dated December 31, 2018 passed under section 143(3) rw.s. 147 of the Act is neither erroneous nor prejudicial and the proceedings under section 263 initiated are not valid they being either barred by limitation under section 263(2) or being a subject matter of appeal [Expl. 1 Sec. 263(1) and ought to be dropped.”
Based on this, the learned PCIT passed an order under section 263 of the Act on 31st March 2021 holding as under:-
“4.1 Deduction under section 36(1)(viia):
The submission made by the assessee is perused but found not tenable as in computation of income the assessee had claimed business loss of Rs.12,82,53,340/- which was accepted by the Assessing Officer. The said loss interalia included Repossessed vehicles of Rs.8,51,14,124/-. This loss is nothing but part of bad debt only as held in AY 2010- 11. As this loss along with other bad debts of Rs.556,05,50,638/- does not exceed the credit balance allowed u/s.36(1)(viia) of the Act allowed in AY 2010-11, the loss was not allowable and required
4.2 Unpaid Leave Encashment:
The submission made by the assessee is perused but found not tenable as in Tax Audit Report (TAR) in 3 CD From that, there was unpaid leave encashment of Rs.108,02,83,033/- which was outstanding as on date of reporting of TAR. Further no document available on records which shows that the said unpaid amount was paid on or before due date of filing of return. However from computation of income of the assessee it is revealed that the assessee had disallowed only Rs.27,82,79,269/- on account unpaid leave encashment which was accepted. As the deduction on account of leave encashment is available only on actual payment, the entire unpaid amount was required to be disallowed. The AG in concluding the assessment, has not considered the above aspects and legal position. Therefore the order passed is erroneous in so far as prejudicial to the interest of revenue within the meaning of provisions of section 263 of the Act.
4.3 Depreciation on lease Assets:
4.4 Income on account Interest on Income Tax relief:
The submission made by assesses in this regard is perused but found not tenable as perusal on submission it revealed that the assessee had interest on income of Rs.164,63,00,000/- on account of interest on income tax relief included in 'others' 'Interest Earned' to the P & L account. This income being income from non finance income, it should also have been reduced from the total business income of the assessee to arrive at the business income from long term finance business activity eligible for deduction u/s. 36(1)(viii) of the Act. However, this was done, leading to excess
In view of the above stated legal position the AOs action in not examining the above stated issues has rendered the assessment order dated 31.12.2018 as erroneous in so far as it is prejudicial to the interests of the revenue. Therefore the assessment order passed u/s.143(3) r.w.s 147 of the I.T. Act., 1961 dated 31.12.2018 without verification of this aspect is erroneous. Since the enquiries with regard to correctness of claim have not been made, the order passed u/s.143(3) r.w.s 147 of the I.T. Act., 1961 dated 31.12.2018 is prejudicial to the interest of revenue. Thus both the conditions specified u/s.263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Therefore the order passed u/s.143(3) r.w.s 147 of the I.T. Act., 1961 dated 31.12.2018 in assessee's case for A.Y. 2011-12 is set aside within the meaning of the provisions of section 263 of the Act with a direction to the A.O to examine the above stated aspects on all the issues as per law and frame a fresh assessment after affording an opportunity to the assessee of being heard.
(i) As regards the scope and ambit of the expression "erroneous", Hon'ble Bombay High Court in C.I.T. vs Gabriel India Ltd. (1993) 203 ITR 108 (Bombay), while referring to Black's Law Dictionary observed that an "erroneous judgment" means "one rendered according to course and practice of Court, but contrary to law, upon mistaken view of law: or upon erroneous application of legal principles". In the instant case the assessing officer ought to have made enquiries relating to correctness and genuineness of the valuation reports relied upon by the assessee company.
(ii) The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. V CIT 243 ITR 83 has held that, "The Commissioner noted that the Income-tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income-tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of the claim of the appellant
(iii) In following cases various courts have justified action U/s 263 of the Act, in case of failure of A.O. to make proper enquiry before accepting the statement made by the assessee/assessment completed in a perfunctory manner and without verifying the nature of expenditure and eligibility of the claim. Gee Vee Enterprises v. Addl. CIT(1975) 99 ITR 375 (Del)m Addl. CIT v. Mukur Corporation (1978) 111 ITR 312 (Guj), Duggal and Co. v. CIT (1996)220 ITR 456 (Del) and CIT v. South India Shipping Corporation Ltd. (1998) 233 ITR 546 (Mad). In the case of Duggal & Co. V/s. CIT 220 ITR 456 (Del), it is also held that word "erroneous" used in Section 263 of the Act, includes the failure to make enquiries as it is incumbent on the A.O. to investigate the facts stated in the return. The ITAT, Ahmedabad in the case of Nakland Diamonds vs. ACIT 67 TTJ 388 (Ahd) has also held that when assessment order is made without proper enquiries on certain points, such
(iv) In case of Swarup Vegetable Products Industries Ltd., 187 ITR 412 (All.), the Hon'ble Allahabad High Court has held that the Commissioner does have the power to set aside the assessment order and sent for fresh assessment if he is satisfied that further enquiry is necessary and that the order of the ITO is prejudicial to the interest of revenue. Further, in the case of Umashankar Saraf V/s CIT 187 ITR 638, the Hon'ble Orissa High Court upheld the Tribunal's order in which the action U/s 263 of the Act of the Commissioner was justified even though there was an exhaustive enquiry by the ITO before making assessment.
(v) In the case of CIT V/s HR Sugar Factory Pvt. Ltd [190 ITR 643 (All)] the Hon'ble Court has held that the Commissioner does have the power to set aside the assessment order and sent matter for fresh assessment if he is satisfied that further enquiry is necessary and that the order of the ITO is prejudicial to the interest of revenue.
(vi) In the case of Mahalakshmi Liquor Promoters (P) Ltd vs. Commissioner of Income Tax [2013] 29 taxmann.com 70, the ld. Tribunal, found that there was no enquiry by the Assessing Officer on the issues raised by the CIT. It was held that the lack of enquiry or inadequate enquiry by the Assessing Officer was a valid reason for revision of the assessment order. The
(vii) In M/s. Subhalakshmi Vanijya Pvt. Ltd. vs. CIT (ITA No. 1104/Kol/2014) where the Hon'ble ITAT held it would be totally untenable to hold that once the Assessing Officer as per his wisdom had enquired into
(viii) Here, it is worth mentioning and taking due note, that the provisions of section 263 are distinct from that of section 147 of the Act. The differing conditionality for the assumption of jurisdiction is ex facie apparent from a plain reading of the aforesaid sections itself. It is also worthwhile to note that Explanation 2(a) below section 263 of the Act specifies that the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the revenue if in the opinion of the Pr. Commissioner, the order was passed without making any inquiries or verification which should have been
"10. Now, as can be seen above, the amendment to section 263 of the Act by insertion of Explanation 2 to Section 263 is declaratory in nature and is inserted to provide clarity on the issue as to which orders passed by the AG shall constitute erroneous and prejudicial to the interest of Revenue whereby it is provided, inter-alia, that if the order is passed without making inquiries or verification by the AG which, should have been made or the order is passed allowing any relief without inquiring into the claim; the order shall be deemed to be erroneous and prejudicial to the interest of Revenue."
In view of the detailed analysis of the assessment order, with reference to the submissions of the assessee, the assessment order dated 31.12.2018 in assessee's case for A.Y. 2011-12 is held to be erroneous in so far as it is prejudicial to the interests of the revenue due to lack of enquiry under Explanation 2 to Section 263 of the Income Tax Act, 1961. Accordingly, the assessment order dated 31.12.2018 passed by the AO under section 143(3) r.w.s 147 of the Act is set aside as per provisions of Explanation 2 to section 263(1) of the Act to the
The learned Authorised Representative submitted that original assessment order under section 143(3) was passed on 25th March, 2015 and reassessment order was passed on 31st March, 2018. She also referred to the order passed under section 263 of the Act and submitted that it has held that the order of reassessment passed on 31st March, 2018 is erroneous and prejudicial to the interest of the Revenue. She therefore submitted that only the issues which were part of reopened assessment could be revised under section 263 of the Act. She submitted that all the issues which are connected by the original assessment order passed on 25th March, 2015 are no longer allowed to be revised in order passed under section 263 of the Act. She therefore submitted that issue pertaining to [1] loss on
With respect to taking exact amount of lease rent and income tax refund for working deduction u/s 36 (1) (vii) , she submitted that both items are related to the claim of deduction under section 36(1)(vii) which is subject matter of appeal before the learned Commissioner of income-tax (Appeals). She referred to the form No. 35 and grounds of appeal filed before the learned CIT(A) against the impugned order which is subject to revision. Here, contention was that issues which are before the learned CIT(A) cannot be the matter of revision under section 263 of the Act.
On the merits of claim of loss on reprocessed vehicles, she submitted that even otherwise, if it is bad debt and further the credit balance under section 36(1)(viia) of the Act does not exceed the claim,
On the issue of unpaid leave encashment, she submitted that out of ₹108,02 crores unpaid leave encashment only ₹27.83 crores has been routed through profit and loss account and the balance of ₹80.20 crores has not been routed through profit and loss account and therefore, not disallowed. She referred to the tax audit report for the above proposition.
With respect to the deduction of special reserve under section 36(1)(vii) she submitted that the learned PCIT has held that the order to be erroneous and prejudicial to the interest of the Revenue while computing the above deduction for the reason that:-
(1) Lease rental income reduced by the assessee in computing income from long term finance is ₹89.85 crores against lease rental income credited to the profit and loss account of ₹98.43 crores,
(2) Interest on income tax refund of ₹164.63 crores in not reducing as non finance income at the time of computation of the above deduction.
She submitted that the ground No.3 of appeal before the learned CIT(A) covers this issue and hence revision cannot be permitted as issues is considered and decided by the ld CIT (A). Accordingly, it was submitted that the order passed by the learned PCIT is not sustainable in law.
The learned Authorised Representative also submitted a note of two pages on the various issues.
The learned CIT Departmental Representative, vehemently supported the order of the learned PCIT. He referred to the paragraph No. 3.3 of the order and stated that assessee himself has accepted that income tax refund interest is required to be reduced while calculating deduction under section 36(1)(vii) of the Act is erroneous . He further referred to the paragraph No. 4.3, the lease rental income has also been reduced to the extent of only ₹89,85,60,025/- instead of ₹98,43,12,859/- and therefore, there is an error of excess allowance of ₹75,97,701/-. He therefore also stated that there is no infirmity in the order passed by the learned PCIT.
We have carefully considered the rival contention, perused the orders of the learned assessing officer passed u/s 143 (3) of the act dated 25/3/2015, u/s 143 (3) read with Section 147 of the act dated
According to the provisions of Section 263 of the income tax act, The Principal Commissioner Of Income Tax, after examination of the records may pass an order thereon, , after giving an opportunity of hearing to the assessee and causing enquiries, if he finds that any order passed by the learned assessing officer is erroneous insofar as it is prejudicial to the interest of the revenue.
According to section 263 (2) of The Act , Such revisionary order can be passed before the expiry of two years from the end of the financial year in which the order sought to be revised was passed. In the present case, the fact shows that first order u/s 143 (3) of the act was passed by the learned assessing officer on 25th of March 2015. Subsequently the case was reopened and reassessment order u/s 143 (3) read with Section 147 of the act was passed on 31 December 2018. Therefore, apparently if the learned PCIT would like to revise the order passed u/s 143 (3) of the act which was passed on 25th of March 2015, the time limit set under the provisions of Section 263 (2) of the act would expire on 31st of March 2017. If the principal Commissioner of income tax points that order passed u/s 143 (3) read with
In the case before us, the reassessment order passed u/s 143 (3) read with Section 147 of the income tax act 1961 considered the following additions:-
a. disallowance of interest u/s 43D read with rule 6EA amounting to ₹ 50,596,549/–
b. disallowance of write off of credit cards amounting to ₹ 476,331,562/–
c. restriction of allowance of deduction u/s 36 (1) (viii) of the act from ₹ 3,797,060,858/– claimed by the assessee to ₹ 3,778,145,600/–
d. considering the perpetual bonds as equity and consequently the interest paid on such bonds was not allowed as deduction u/s 36 (1) (iii) of the act and thereby ₹
e. the addition on account of mismatch of income as perform number 26AS of ₹ 661,817/–
The learned PCIT invoked the provisions of Section 263 of the income tax act on three counts as Under:-
a. the consideration of loss on repossessed vehicles to be treated as bad debts and not as a business loss
b. disallowance of unpaid leave encashment u/s 43B (f) of the act
c. disallowance of deduction claimed u/s 36 (1) (viii of the act.
On careful examination, issue number (a) and (b) above, are not part of the reassessment order but were part of the original assessment order. As we have already stated that the time limit for revising the issues involved in the original assessment order has already expired on 31/3/2017, therefore the revision on the above issues namely (1) the consideration of loss on repossessed vehicle is bad debts and not in the business loss, (2) disallowance of unpaid leave encashment u/s 43B (f) of the act is beyond the powers of the ld PCIT u/s 263 of the act.
Now the issue remains to be examined that whether the learned PCIT is correct in assuming jurisdiction of revisional powers u/s 263 of The Income Tax Act with respect to the deduction claimed u/s 36 (1) (viii) of the act. The learned assessing officer while passing an assessment order u/s 143(3) read with Section 147 of the income tax act has considered the whole issue of the deduction u/s 36 (1) (viii) of the act where the deduction claimed by the assessee of ₹ 3,797,060,858 was examined. Assessee worked out long term finance income at ₹ 18,985,304,290/–. The 20% of such sum which is allowable u/s 36 (1) (viii) amounts to ₹ 3,797,060,858/–. Thereafter applying the ratio of special reserve transfer and amount equal to twice of the paid-up share capital and general reserve, the assessee claimed deduction u/s 36 (1) (vii ) of the act amounting to ₹ 3,797,060,858.
During the course of assessment proceedings the assessee was asked to justify the claim of deduction Under that Section. After that learned assessing officer allowed the claim of ₹ 3,778,145,600/–.
Assessee explained that that a net lease income of ₹ 898,560,025/– has been credited to the profit and loss account, which includes the total rental income of ₹ 984,312,859 and interest on arrear of lease rent amounting to ₹ 68,931,400, which has been reduced by interest expenses of ₹ 154,684,234. Thus the net resultant figure resulted into net credit of ₹ 898,560,025/– . Same has been reduced as lease income from the total income from long-term finance. Therefore, there is no error in the assessment.
There is one more component of deduction u/s 36 (1) (viii) of the act. Assessee has earned interest income on Income tax Refund of ₹ 1,646,300,000. This was disclosed by the assessee in schedule 13 Under the head interest earned – ‘others’ in the profit and loss account. This income was also
In response, assessee submitted that Interest on Income tax Refund has inadvertently not been reduced in the order dated 31 December 2018 passed u/s 143 (3) read with Section 147 for the aforesaid assessment year. The assessee agreed that the above sum may be adjusted by reducing the claim. It was further stated that the same was reduced in the earlier order giving effect to the order of the learned CIT – A passed on 31st of March 2017 for the assessment year. The assessee submitted that the same may be rectified by an order u/s 154
With respect to the above two adjustment both are relating to deduction u/s 36 (1) (viii) of the act, it was submitted by the ld AR that power of the Commissioner to revise an order u/s 263 of the act can only be restricted to the matters as had not been ‘considered and decided’ in the appeal. It was stated that the above mentioned issue regarding curtailment of deduction claimed u/s 36 (1) (viii) of the act has already been made a subject matter of appeal before the learned CIT – A (6), Mumbai against the order passed u/s 143 (3) read with Section 147 dated 31st of December 2008. The assessee submitted copy of form number 35 and grounds of appeal wherein as per ground number 3 this deduction is challenged. Thus, the learned authorised representative submitted that the learned PCIT could not have invoked the powers of revision u/s 263 of the act.
The learned departmental representative vehemently supported the order of the learned principal Commissioner of income tax and stated that the assessee has claimed excess deduction u/s 36 (1) (viii) of the act by reducing lesser income of lease rent income from the long-term finance income. He further submitted that interest on income tax refund
We have carefully considered rival contention and perused order of the learned principal Commissioner of income tax as well as the order of the learned assessing officer wherein the computation of deduction u/s 36 (1) (viii) of the act has been made, The first issue that arises is whether the correct lease rental income has been reduced by the assessee and ld AO in computing the income from long-term finance or not. In para number [5] of the assessment order the learned assessing officer has reproduced the computation made by assessee where the lease income has been reduced by ₹ 898,560,025/–. At paragraph number 5.5, the learned assessing officer has taken the same lease income of ₹ 898,560,025 for reduction from income from long-term finance. The contention of the learned principal Commissioner of income tax is that the learned assessing officer should have taken the above sum at ₹ 984,312,859/–. On careful
Further with respect to the inclusion of interest on income tax refund considered both by the assessee as well as by the learned assessing officer as part of long-term finance income of the assessee, the assessee itself agreed that there is an error and it should not have been included in the long-term finance income of the assessee.
Therefore on both these issues, the learned assessing officer has failed to make any enquiries to examine whether the correct lease rental income as well as interest on income tax refund should have been included in the long-term finance income of the assessee for working out deduction u/s 36 (1) (viii) of the act. Hence, on both these issues, we do not find any infirmity in the order of the learned principal Commissioner of income tax in invoking jurisdiction u/s 263 of the income tax act. Accordingly the action of the learned principal Commissioner of income tax u/s 263 of the act is confirmed to that extent only.
The learned authorised representative has also stated that assessee has filed an appeal before the learned CIT – A against the same order of the
“3. Deduction u/s 36 (1) (viii) of the act
(para 5, pages 11 to 16 of the assessment order)
3.1 on the facts and circumstances of the case and in law, the assessing officer erred in restricting the deduction of special reserve claimed u/s 36 (1) (viii) by not allowing the interest cost of ₹ 1,339,096,784 apportioned by the appellant to its non-fund-based income relating to trading and rental thereby resulting in
3.2 the assessing officer ought to have appreciated that his predecessor in para 15 of the order passed u/s 13 (3) read with Section 14C (3) on March 25, 2015 has considered the working of special reserve and has allowed deduction of special reserve at 514,43,59,610 – hence the reassessment on the said issue is on mere change of opinion on the same set of facts which is not permissible in law.”
On careful consideration of the ground raised before the learned CIT – A, we do not find that there is any dispute with respect to the computation of the long- term finance income of the assessee for working out deduction u/s 36 (1) (viii) of the act. The learned principal Commissioner of income tax has revised the order of the learned assessing officer holding it to be erroneous as the learned assessing officer has failed to apply his mind with respect to the computation of the long-term finance income qua reduction of lease rental income as well as interest income from income tax refund. Even otherwise there is no
In the result we hold that the learned principal Commissioner of income tax is correct in setting aside the assessment order passed u/s 143 (3) rws 147 of the Act dated 31-12-2018 by passing an order u/s 263 of the income tax act with respect to the deduction claimed u/s 36 (1) (viii) of the act for excluding the correct amount of lease rental income and interest income on income tax refund for working out long-term finance income of the assessee.
With respect to the issue of repossessed vehicles to be treated as bad debts and non-disallowance of unpaid leave encashment, as already held above the order of the learned principal Commissioner of income tax is not sustainable in law. Therefore on these two issues the order of the learned principal Commissioner of income tax is quashed.
Order pronounced in the open court on 08.03.2022.
Sd/- Sd/- (PAVAN KUMAR GADALE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated:08.03.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT DR, ITAT, Mumbai 5. 6. Guard file. BY ORDER, True Copy//
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai