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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI INTURI RAMA RAO, AM & SHRI SONJOY SARMA, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SONJOY SARMA, JM ITA No.230/PUN/2016 Assessment Year : 2011-12
Prabhakar Manjaji Thakre Prop. Shriram Krushi Kendra Somwar Peth, Sindhkhedraja, Dist. Buldhana – 444 203 PAN : AAMPT7873L …….Appellant V/s. Commissioner of Income-tax I, Nagpur ……Respondent Assessee by : Shri M.K. Kulkarni Revenue by : Shri J.P. Chandraker Date of Hearing : 25.03.2022 Date of Pronouncement : 01.04.2022
ORDER PER SHRI SONJOY SARMA, JM: This is an appeal filed by the Assessee directed against the order of ld. Pr. Commissioner of Income-tax-I, Nagpur dated 22-01-2016 for A.Y. 2011-12 on the following grounds of appeal. I. The Order u/s 263 of the I.T. Act, 1961 passed by the Ld. CIT-I, Nagpur may be held erroneous both in facts and law. a) Disallowance of Interest Paid Rs.2,85,632/- u/s 40(a)(ia) The Ld. CIT-I, Nagpur erred in considering the facts of the case as per the records: i) That the interest paid to each one of the two deductee's / payee's does not exceed the prescribed Taxable Limit. ii) That the TDS made in subsequent three assessment years (Le. for A.Y. 2012-13, 2013-14 & 2014-15), the amount of TDS resulted into refund for the reason that the Income computed in the Return of Income is below taxable limit. iii) In holding that the interest consolidatively paid at Rs.2,85,632/- to payee's is disallowable simply because the appellant failed to deduct tax u/s 194A rws 44AB. iv) In disallowing the – interest paid without taking into consideration the provisions of sec. 201 of the LT. Act, 1961 (consequences for failure to deduct or pay). b) Disallowance of claim towards Exemption of Long Term Capital Gain at Rs.14,68,380/-. i) In denying that the deposit of the entire sales consideration of the plots at Rs.15,46,OOO/- held in his "Capital Gain Account No. 3183801960" with the State Bank of India, Sindkhedraja is the Long Term Specified Asset u/s 54EC of the LT. Act, 1961. ii) In not considering that the Bond "STDR" issued by the S.B.1. was based on the "Captial Gain Account No. 3183801960".
2 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 iii) In not considering the submission made that the Bond "STDR" not being the Specified Asset required u/s 54EC was wrongly issued by the Banker. iv) In not appreciating that the appellant is innocent and ignorant to understand that the Bond "STDR" issued by the Bank is not the Specified Asset u/s 54EC. v) In not exercising the discretionary powers vested by virtue of provisions of sec. 263 to hold the appellant as “bonafide” so that to allow the benefit of doubt in favor of the appellant. II The order u/s 263 passed by the Ld. CIT-I, Nagpur may be held as not sustainable simply because, the ITO had taken a particular view on considering the material and explanations offered in pursuance of Notices u/s 142(1) and 143(2) with which the Ld. CIT- I, Nagpur disagree.” III The order u/s 263 of the LT. Act, passed by the Ld. CIT-I, Nagpur may be held as illegal and may not be sustainable as it was without assuming proper jurisdiction since the powers are invoked without satisfying both the conditions (1) the order passed by Assessing Officer u/s 143(3) is erroneous and (2) it should be prejudiced to the interests of the revenue applying the ratio of case law Green World Corporation vs. ITO (2009) 3141TR 81 (SC). iv) The appellant craves to leave, add, amend, alter, substitute, and modify the above grounds of appeal, if necessary on the basis of written submissions and personal presentation to be made at the time of hearing.” 2. The assessee has also raised the following additional grounds of appeal. 1) On the facts and circumstances of the case and in law the Ld. CIT-I, Nagpur was not justified in not considering the factual matrix in its proper perspective as what was sold was not an capital asset but stock-in-trade resulting into any long term capital and the provisions of S. 54EC were not applicable. The Ld. CIT-1 Nagpur ought to have considered the legal position that capital asset was not sold but only stock-in-trade was sold not giving any rise to Long term capital Gain. The order of the Ld. CIT passed under S. 263 be set aside as the same is not sustainable in law. 2) On the facts and circumstances of the case and in law and in view of Ground No. 1 above all the factual matrix and legal position and placing reliance on S. 45(2) suggest that there was no Long Term Capital Gain. In order to give complete justice to the assessee the order of the CIT-Nagpur be set aside with proper directions In the matter. “ That at the time of hearing the ld. .A.R for the assessee further raised 3. following additional ground of appeal and for which the ld. D.R has no objection for the same and accordingly enumerated the following additional ground of appeal. “On the facts and circumstances of the case and in law the order passed by Ld. Pr CIT invoking S. 263 of the Act is bad in law and without jurisdiction. The provisions of S. 263 cannot be invoked to set aside/cancel the illegal assessment. The perusal of demand notice u/s 156 would show that it was dt. 24-12-2013 and the assessment was completed on 26-12-2013. In view of the fact that the demand notice was not in consequence of assessment, the assessment order itself is bad in law and without jurisdiction. The order u/s 263 is not sustainable initiated against illegal order. The assessment order and S. 263 order be quashed.”
We do not find it proper ground for root of the case in the instant appeal and accordingly dismissed the ground.
3 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 4. The relevant facts are that the assessee had filed a return of income on 2- 4-2012 showing total income of Rs. 9,79,970/- for the year under consideration. Assessment was completed on 26-12-2013 determining the total income at Rs. 10,39,970/-. The case was selected for scrutiny and notice u/s 143(2) was issued to the assessee. The A.O after duly examination of audited books of accounts and other related documents like vouchers, etc. income of the assessee was computed as under: Total income as per income: Rs. 9,79,970/- Add: i) Disallowed godown rent Rs. 20,000/- ii) Disallowed salaries Rs. 20,000/- iii) Disallowed travelling expenses Rs. 20,000/- ------------------ Rs. 10,39,970/-. ------------------ 5. Accordingly, the assessment was completed u/s 143(3) of the Act. Subsequently, on an examination of record, the ld. Pr. CIT has come to know that A.O erred in following manner while passing the assessment order dated 24-12-2013. i) Interest of Rs. 2,85,632/- has been paid without deduction of TDS as noticed in Audit report for the F.Y. 2010-11 dated 24-9- 2011 in form No. 3CD, Col. 17(f). The same was not offered for taxation and the A.O also erred in not making a disallowance of the same u/s 40(a)(ia) of the I.T. Act, 1961. (ii) The assessee has sold plots amounting to Rs. 15,46,000/-. The long term capital gain from this transaction was shown of Rs. 14,68,380/-. However, the same was claimed as exempt u/s 54EC of the Act. In support of the claim of exemption, copy of STDR with SBI for An amount of Rs. 15,46,000/- was furnished. However, the same is not a “long term specified asset” within the meaning of sec. 54EC. The A.O allowed the claim of exemption which is clearly erroneous.”
Accordingly, the ld. Pr. CIT issued a show cause notice u/s 263 of the Act vide notice dated 28-10-02015, in response to which the assessee himself had filed written submissions on 19-1-2016 as under “3. Regarding the first issue of non-taxation of TDS on interest of Rs. 2,85,632/-the assessee submitted that the interest was paid to the following persons. a) Yadav Prabhakar Thakre (HUF) - Rs. 1,42,816/- b) Rarnprasad Prabhakar Thakre (HUF) - Rs. 1,42,816/- He submitted that as they did not have taxable income, the TDS was not deducted on interest paid to them.
4 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 Regarding the claim of deduction u/s 54EC on the sale proceed of the plot, the assessee submitted that the STDR was purchased on an advice of an official of State Bank of India.
The assessee further submitted that the Assessing Officer did not disallow the claim of interest as well as deduction uls. 54EC after application of mind and so the proceedings uls. 263 should be dropped.
That on consideration of the submissions filed by the 7. assessee, the ld. Pr. CIT made following observations.
I have considered the facts of the case, the assessment records and the submissions of the assessee carefully. The assessee was required to deduct TDS on the payment of interest as per the provisions of sec. 1 94A of the 1. T. Act, 1961: It is undisputed fact that the assessee did not make any such TDS. So the provisions of sec. 40(a)(ia) are fully applicable on the issue. Income of the payee is taxable or not is not a relevant fact for the payer for making deduction uls. 194A. As the assessee failed to deduct tax, the Assessing Officer was required to make disallowance of interest of Rs. 2,85,632/- u/s. 40(a)(ia). He did not do so. He also did not discuss this issue in the assessment order. The assessment order is, therefore, erroneous & prejudicial to the interest of revenue on this issue. The Assessing Officer is directed to make the disallowance of interest of Rs. 2,85,632/ - u/s. 40(a)(ia) on account of non-deduction of TDS.
The claim of deduction u/s. 54EC was made on account of STDR with SBI. The STDR with SBI is not a long term specified assessee within the meaning u/s. 54EC. The Assessing Officer did not notice this fact during the course of assessment proceedings and allowed the claim without application of mind. So the order of the Assessing Officer on this issue- .1]50 is erroneous & prejudicial to the interest of revenue. Even during the revision proceeding, the assessee could not show that the STDR with SBI was a long term specified asset within the meaning of sec. 54EC. The Assessing Officer is, therefore, directed to make the disallowance of the claim of deduction u/s. 54EC with respect to such STDR with State Bank of India.
The Assessing Officer is directed to pass a fresh assessment order after making the above disallowances. The original assessment order dated 24.12.2013 shall stand modified to that extent.”
He accordingly held that the assessment order is erroneous and prejudicial to the interest of the revenue and set aside the issue to the file of the A.O for fresh adjudication making the disallowance of interest paid Rs. 2,85,632/- u/s 40(a)(ia) of the Act and claim of deduction u/s 54EC of the Act.
5 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 9. Being aggrieved by the above order of the ld. Pr. CIT the appellant is in appeal before us.
At the time of hearing, the ld. A.R submits that long term capital gain did not arise to the asessee in the year under appeal and hence there was no question of claim of exemption under section 54EC of the Act and as such the order passed by the A.O is not erroneous and prejudicial to the interest of revenue.
The ld. A.R further submits that the ld. Pr. CIT was also not justified in his finding that the assessment was erroneous and prejudicial to the interest of revenue as no tax was deducted u/s 40(a)(ia) of the Act, since deductee had no taxable income therefore, provisions of sec. 40(a)(ia) of the Act is not applicable.
We have heard the rival submissions and perused the material available on record. Before going through the facts of the case, we would like to place it on record the provisions of sec. 263 of the Act. “263(1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making o causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.” 13. After going through the assessment order as well as the order of ld. Pr. CIT, it is revealed that although the interest was paid to Yadav Prabhakar Thakre (HUF) of Rs. 1,42,816/- and Ramprasad Prabhakar Thakre (HUF) of Rs. 1,42,816/-, however, the assessee did not deduct tax while disbursing interest to them. As such, the disallowance is to be made u/s 40(a)(ia) of the Act. As regards the other issue, the assessee sold plots amounting to Rs. 15,46,000/-. The long term capital gain from this transaction was shown of Rs. 14,68,380/-. However, the assessee claimed the same as exempt u/s 54EC of the Act. In support of his claim, the assessee submitted that a copy of the STDR with SBI for an amount of Rs. 15,46,000/- was furnished. However, the same is not a
6 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 long term specified asset within the meaning of sec. 54EC of the Act. The A.O did not examine these facts in depth and discuss this issue in the assessment order.
We find that since the assessee failed to deduct tax, the A.O was required to make disallowance of interest of Rs. 2,85,632/- u/s 40(a)(ia) of the Act on account of non-deduction of TDS. The A.O also did not notice that STDR with SBI is not a long term specified asset within the meaning of sec. 54EC of the Act and allowed the claim of the assessee without going through the facts. Therefore, the order passed by the A.O is erroneous and prejudicial to the interest of revenue.
We find that the jurisdictional High Court in the case of Sesa Starlite Ltd. Vs. CIT (2021) 430 ITR 121 S. 263 : Commissioner-Revision of orders prejudicial to revenue - Queries raised but order without application of mind and consideration of material provided - Revision of order is held to be valid. [S. 10B] Court held that there was no consideration whatsoever of the information provided by the assessee in the context of its claim. This was a case of no consideration as opposed to mere inadequate consideration. This was a clear case of non- application of mind to the material on record, without even going into the issue whether the material supplied by the assessee was adequate or inadequate to determine its claim for deduction under section 10B. The circumstance that for certain subsequent assessment years the claim of the assessee for deduction under section 10B of the Act was allowed by the Tribunal was not strictly speaking relevant to determining whether the revision jurisdiction was correctly invoked. Firstly, the view taken by the Tribunal had till date, not attained finality. Secondly, the view was in the context of the subsequent assessment years. It was possible that for a given assessment year the assessee did not fulfill the prerequisites for claiming the deduction under section 10B. From the material on record, it was not possible to say that the Commissioner, in this case, had acted under dictation from any extraneous authority. Although the Commissioner, in invoking revision jurisdiction, had made reference to the report of the Serious Fraud Investigation Office. However, that did not mean that the Commissioner had acted under dictation. Therefore, any subsequent and allegedly changed report of the Serious Fraud Investigation Office would not dent the exercise of jurisdiction by the Commissioner under section 263. The Commissioner was correct in setting aside the assessment order. Followed Rampyari Devi Saraogi v. CIT (1968) 67 ITR 84 (SC). (AY. 2006-07, 2007-08).
Similarly, the jurisdictional High Court in the case of CIT Vs. Ballarpur Industries Ltd. (2017) 85 Taxmann.com 10 (Bom) observed as under: 13. The above issue which comes for our consideration is, did the Assessing Officer consider and examine the claim of the respondent before allowing a claim for deduction under Section 80 BHC of the Act. The
7 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 respondent- assessee seeks to draw inference from the statement of case that there was an inquiry made before allowing the claim of deduction under Section 80 HHC of the Act at RS.92.81 lakhs. This inference is not justified. Mere using the word "allowed" does not mean examination and enquiry before allowing deduction under section 90HHC of the Act,. The words “due verification” would include within its ambit not only inadequate inquiry verification but also no enquiry/verification. However, in the case the respondent-assessee was of the view that the claim has been examined by the Assessing Officer before allowing it, then respondent-assessee ought to have the statement of case modified/amended so as to bring the aforesaid facts on record, as held by the Apex Court in the case of Calcutta Agency LId. (supra). This not being done and now to draw far fetched inference cannot be accepted. It is now settled in view of Malabar industries (supra) that non- enquiry before allowing the claim would make the order of the Assessing Officer amenable to jurisdiction under Section 263 of the ~non-enquiry by the Assessing Officer gives jurisdiction under Section 263 263 of the Act. Merely because the issue is debatable, it does not absolve the Assessing Officer from examining the issue and taking a view on the claim after examination. Similarly because the two views are possible and or that there are contrary view of higher forums, does not permit non-examination of the claim and taking one of the possible view by giving reasons. In this case no examination of the claim under Section 80HHC of the Act has been done by the Assessing Officer. Therefore, the exercise of jurisdiction by the Commissioner of Income Tax under Section 263 of the Act was valid. 14. The decision of the Apex Court in Max India Ltd. (supra) relied upon by the respondent-assessee to our mind would not come to its rescue for the reason that in the present facts the statement of the case does not .indicate that the view taken to allow the claim under Section 80 J !IIC of the Act was after examination/inquiry. Mere taking of a view by the Assessing Officer without having subjected the claim to examination would not make it a view of the Assessing Officer. A view has necessarily to be preceded by examination of the claim and opting to choose one of the possible results. In the absence of view being taken, merely because the issue itself is debatable, would not absolve the Assessing Officer of applying his mind to the claim made by the assessee and allowing the claim only on satisfaction after verification/enquiry on his part. A view in the absence of examination is no view but only a chance result. Therefore, even the decision of the Andhra Pradesh High Court in Goginent Tobacco Ltd. (supra) will also have no application. 15It appears from the decision of the Apex Court in Max India LId. (supra) that the Assessing Officer had taken one of the two views of the word "profit" as occurring in Section 80 BHC of the Act. Therefore, it was in that context that the Apex Court held that Section 263 of the Act would not be attracted particularly when the view of the Assessing Officer was found to be a view taken by various authorities under the Act. In passing we may point out that as recorded in the statement of case, the Tribunal held the exercise of powers under Section 263 of the Act by the Commissioner of Income Tax to be bad in law as the view of the Assessing Officer was in line with the decision of the Tribunal in Mysore Exports Ltd. (supra). It is relevant to note that on the date when the Commissioner of Income Tax exercised his powers under Section 263 of the Act on 3l.03.1995, the decision of the Tribunal in Mysore Exports Ltd. (supra) was not available before him as it was rendered on 19.05.1995. 16. Therefore, we are of the view that the Assessing Officer cannot abdicate his responsibility of examining the claim for deduction before allowing it. Absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous and coupled with the fact that in this case it is admitting prejudicial to the interest of the revenue, exercise of the revisional jurisdiction under Section 263 of the Act by the Commissioner of Income Tax proper and valid.”
Applying the same principle, we are of the view that the order passed by
8 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12 the ld. Pr. CITM u/s 263 of the Act is proper and valid and does not call for any interference at our hands. We therefore, hold that the ld. Pr. CIT was right in invoking his jurisdiction u/s 263 of the Act and directing the A.O to make disallowance of interest of Rs. 2,85,632/- u/s 40(a)(ia) of the Act on account of non-deduction of TDS and also in directing the Assessing Officer to make disallowance of the claim of deduction u/s 54EC of the Act with respect to such STDR with SBI.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court on this 1st day of April, 2022.
Sd/- Sd/- (INTURI RAMA RAO) (SONJOY SARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Pune; Dated : 1st April, 2022. Ankam
Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The Pr. CIT -1 Nagpur 5. DR, ITAT, “B” Bench, Pune. 6. Guard File. BY ORDER, //True Copy// Senior Private Secretary ITAT, Pune.
9 ITA No.230/PUN/2016 Prabhakar S. Thakare A.Y. 2011-12
Date 1 Draft dictated on 01-04-2022 Sr.PS/PS 2 Draft placed before author 01-04-2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member
4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS/PS PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order