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Income Tax Appellate Tribunal, PUNE“A” BENCH, PUNE
Before: HON’BLE SHRI SS VISWANETHRA RAVI & SHRI G. D. PADMAHSHALI
ORDER Per G. D. Padmahshali, AM; This appeal for the assessment year [for short “AY”] 2014-15 is directed against the order of Commissioner of Income Tax (Exemptions), Pune [for short “CIT(E)”] dt. 31/03/2019 passed u/s 263 of the Income-tax Act, 1961 [for short “the Act”] setting aside the order of assessment order dt. 29/12/2016 passed u/s 143(3) of the Act passed by Asstt. Commissioner of Income Tax Circle-1, Aurangabad [for short “AO”]. ITAT-Pune Page 1 of 12 Marathwada Auto Cluster
First of all, we advert to the basic facts pertaining to present appeal as; 2.1 The assessee is resident company incorporated u/s 25 of the erstwhile Companies Act with the object of research and promotion of manufacturing of auto products and to generate employment in the Aurangabad region. For AY 2014-15 it has filed its return of income [for short “ITR”] declaring “NIL” taxable income, which after summarily assessed u/s 143(1) of Act, was selected for limited scrutiny under CASS mechanism and then converted into complete scrutiny obtaining approval from Ld. PCIT to verify the taxability of interest not routed through profit & loss account [for short “P&L”] but taken directly to Balance-sheet.
2.2 The regular assessment u/s 143(3) finally framed with solitary addition on account of unexplained investment not forming subject matter of challenge before us. Considering the submission with respect to aforestated interest, no addition were proposed and carried out in the assessment. ITAT-Pune Page 2 of 12 Marathwada Auto Cluster 2.3 It emerges that, the Ld. CIT(E) invoking the provisions of section 263 of the Act issued a show cause notice [for short “SCN”] dt 19/03/2019 with a proposition to revise the regular assessment terming it as erroneous and prejudicial to the interest of revenue for the solitary reason that, interest of ₹5,37,22/- on deposit earned not offered for taxation but taken to Balance-sheet directly.
2.4 During the course of revisionary proceedings the assessee reiterated its submission that, said interest earned on the capital grant from Ministry of Commerce and Industry, Government of India and pursuant to restriction placed on utilization of interest, same was either liable to be adjusted against the subsequent grant instalment or to be refunded. The said submission of the appellant however, did not inspire any confidence to the Ld. CIT(E), consequently he set-aside the regular assessment on this count and directed the Ld. AO for framing the assessment a fresh insofar as the taxability of interest is concerned. ITAT-Pune Page 3 of 12 Marathwada Auto Cluster 2.5 Pending such proceedings before the Ld. AO, the appellant challenged the impugned order of revision on the following grounds ;
1. Pr. CIT has erred in invoking provisions of Sec 263 alleging that assessing officer while finalizing scrutiny assessment has not made additions of interest of Rs.5,37,228/-. Appellant prays for cancellation of the order as the same is without jurisdiction and bad in law.
2. Pr. CIT has erred in issuing notice U/s. 263 and passing the order u/s.263, even after noting that for the same issue scrutiny assessment was converted into full scrutiny from limited scrutiny. Appellant prays to cancel the order as Pr. CIT has not even alleged „No enquiry or Lack or Enquiry‟
3. Pr. CIT has erred in ignoring the fact on record that Pr. CIT himself has granted registration u/s. 12AA and ITAT for A.Y. 2012 - 13 set aside the order u/s. 143(3) for computation of income u/s. 11 to 13 of the Act. Appellant prays for the cancellation of order as same is without application of mind and only based on audit objection.
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4. Pr. CIT has erred in passing the order u/s. 263 inspite of the fact that order u/s 143(3) passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue.
5. Pr. CIT has erred in directing Assessing Officer to pass order denovo on the issue of interest of Rs. 5,37,228/- accrued on FDR instead of dropping the proceedings.
6. Pr. CIT has erred not being just and fair in passing the order.”
3. It shall suffice to articulate that, the sole and substantive ground in the extant appeal revolves around challenging the assumption of revisionary jurisdiction in absence of satisfaction of twin conditions fastened in section 263 of the Act.
4. During the course of physical hearing, the Ld. AR at the outset adverting to order-sheet entry placed at page 6 of consolidated paper-book, rowed that, for the very such reason the limited scrutiny was converted into complete scrutiny and vouching the restriction placed on utilization of interest earned on ITAT-Pune Page 5 of 12 Marathwada Auto Cluster Govt. of India, Ministry of Commerce & Industry, the Ld. AO concurred the non- taxability. However Ld. CIT(E) sitting on the same fence held the assessment as erroneous and prejudicial to the interest of the revenue for non-inclusion of aforesaid interest in the computation of taxable income, thus the revisionary authority tried to substitute the one of the plausible view taken by tax authority below [for short “TAB”] which is impermissible under law. Per contra, the learned departmental representative [for short “DR”] adverting to explanation 2 to section 263(1), strongly relied on the orders of Ld. TAB and submitted that, remand back would not cause any prejudice to the appellant if it successfully establishes the restriction on utilization of interest earned on the capital grant as part of “grant-in-aid” or liability to refund to the credit of Govt. of India.
We have heard the rival contentions of both the parties; and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [for short ITAT-Pune Page 6 of 12 Marathwada Auto Cluster Rules”] perused the material placed on records till the date of conclusive hearing and duly considered the facts of the case in the light of settled legal position forewarned to either parties.
In adjudicating the issue, let us first came to ambit scope of revisional jurisdiction through judicial precedents. The Hon'ble apex court’s landmark decision in “Malabar Industrial Co. Ltd. vs. CIT” reported at 243 ITR 83 made it ample clear long back that the crucial expression “prejudicial to the interest of the revenue” is to be read in conjunction with an erroneous order passed in assessment framing the subject-matter of revision. Their lordships observed that every loss of revenue in consequence to the assessment in issue cannot be treated as prejudicial to interest of the revenue. For example, where an assessing authority adopts one of the course possible in law and it has resulted in loss of revenue or where two issues are possible and one of them has been taken in assessment and the Commissioner does not agree to same, it cannot be ITAT-Pune Page 7 of 12 Marathwada Auto Cluster Assessing Officer’s view is unsustainable in law. The very view stood reiterated in CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC), CIT v. Nahar Exports Ltd. (2007) 288 ITR 494 (P&H), CIT vs Gabriel India Ltd (1993) 203 ITR 108 (Bom) Grasim Industries vs. CIT (2010) 321 ITR, 92 (Bom). We keeping in mind all this settle legal preposition, to revert back to the twin issues (supra) raised in the Ld. CIT(E)’s 263 order under challenge.
Admittedly, the case of the appellant was selected for limited scrutiny, which after obtaining approval from the respective authority, converted the same into complete scrutiny for the reasons elucidated at para 3 & 4 of page 1 & 2 of impugned revisionary order, which reads as; “3.While going through the financial statement of above mentioned assessee it is noticed that interest accrued on deposits worth Rs.5,37,228/- is credited to ITAT-Pune Page 8 of 12 Marathwada Auto Cluster balance sheet but same is not offered to tax. Addition on the same issue for A.Y. has been confirmed by CIT(A).
Reasons for selection of the case for limited scrutiny do not cover the above mentioned issue. Hence for verification of interest accrued on deposits worth Rs. 5,37,228/- not offered to tax, the case needs to be converted to complete scrutiny from limited scrutiny, as para 3rd of CBDT‟s Instruction No. 2/2015 dated 29th Dec 2015, if approved.”
Undisputedly, the assessee carried the said interest earned on capital grant to the Balance-sheet without being crediting to P&L, consequently same remained untaxed for the reason of restriction placed on the utilization thereof which can be evinced from the text of letter dt. 01/05/2014 issued by the granting authority, which is placed on record, and the para 2(xvii) thereof reads as under; “The SPV shall not utilize the interest earned on the grant so released to it for any purpose. The interest earned shall be indicated in the UC which can either be adjusted to next release or to be refunded to the Government of India after grant-in-aid sanctioned is utilized.”
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From the aforestated discussion, it is uncloudly clear that, in the light of aforesaid restriction the taxability of interest is vouched by the Ld. AO in the course of regular assessment proceedings and accordingly applied his mind in coming to conclusion taking one of the plausible view thereon, consequenti the concluded proceedings left with no scope to elicit invocation of revisionary action, hence the action of Ld. CIT(E) invoking the revisionary power in the absence of any fresh material brought on record has indeed showcased of his making roving enquiries into taxability of such interest once again which is contra- legem and this view finds fortified by the Hon’ble Jurisdictional High Court of Bombay in the celebrated case of “CIT Vs Gabriel India Ltd.” reported in 203 ITR 108 vide para 9 thereof, which reads as under; “9. From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income- tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section ITAT-Pune Page 10 of 12 Marathwada Auto Cluster (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO ).
10. As observed in Sirpur Paper Mills Ltd. v. ITO by Raghuveer J. (as his Lordship then was), the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, "except when legal ingenuity is exhausted". To do so, is ". . . to divide one argument into two and to multiply the litigation".
In the light of aforesaid discussion, we find no force in the conclusion drawn by Ld. CIT(E) holding the assessment as erroneous and prejudicial to the interest of revenue, for the reason we quash the ITAT-Pune Page 11 of 12 Marathwada Auto Cluster revisionary order as bad in law, thus sole and substantive ground is adjudicated in favour of appellant by restoring order of regular assessment passed u/s 143(3) of the Act.
3. Resultantly, the appeal of the appellant assessee is ALLOWED in aforestated terms. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Thursday 13th day of October, 2022.
-S/d- -S/d- SS VISWANETHRA RAVI G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 09th day of December, 2022. आदेश की प्रधिधलधप अग्रेधिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent.
The Addl. CIT-(E), Aurangabad (Mh-India) 4. The CIT(E), Pune (Mh-India) 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय न्य य दिकरण, पुणे “ए” बेंच, पुणे / DR, ITAT, Pune “A” Bench, Pune. 6. ग र्डफ़ इल / Guard File. आिेश नुस र / BY RDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय न्य य दिकरण, पुणे / ITAT, Pune.
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