Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, BENCH “A”, MUMBAI
Before: SHRI PAWAN SINGH & SHRI RAJESH KUMAR
O R D E R
PER PAWAN SINGH, JUDICIAL MEMBER :
This appeal by assessee is directed against the order of learned Commissioner of Income Tax (LTU) hereinafter referred as ‘ld.CIT’, Mumbai passed under section 263 dated 27-03-2019 for assessment year 2013-14. The assessee has raised the following grounds of appeal:
Ground No.1- Revision Order Under Section 263 Of the Income Tax Act, 1961 (‘the Act’) is bad-in-law: 1. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax- LTU (hereinafter referred to as ‘CIT’) was not justified and grossly erred in invoking the revision proceedings under section 263 of the Act and revising the order passed by the ACIT (LTU)-1 (‘Assessing Officer’) under section 143(3) read with Section 144C(3) of the Act dated February 22,2017 (‘Assessment Order’) on the alleged ground that the order was erroneous and prejudicial to the interest of the revenue.
2 Mum 2019-ACC Limited 2. The appellant prays that it be held that the order passed by the AO is neither erroneous nor prejudicial to the interest of revenue and accordingly, the action of CIT invoking the revision proceedings and revising the order of the AO be set-aside. Without prejudice to ground no.1 Ground No.2- Allowability of provision of interest u/s. 234D under provisions of MAT:
1. 1. On facts and circumstances of the case and in law, the CIT erred in concluding that provision of interest on income-tax amounting to Rs. 14.44 crores provided for withdrawal of excess refund is income-tax charged under the provisions of the Act and therefore, ought to have been added while computing the book profits under section 115JB of the Act.
2. The appellant prays that it be held that provision for withdrawal of excess refund is not income-tax charged under the provisions of the Act and therefore addition made by the CIT be deleted and the order of the AO be restored.
2. Brief facts of the case are that the assessee is a company, engaged in the business of cement manufacturing, filed its return of income for Assessment Year 2012-13 on 25.11.2013 declaring total income of Rs. 482,01,06,150/- under the normal provision of the Act and book profit under section 115JB of Rs. 1207,56,14,327/-. The case was selected for scrutiny and assessment was completed under section 143(3) r.w.s 144C(13) of the Act on 22.07.2017.
The Assessing Officer while passing the assessment order made various additions/disallowance including provision for interest on Income-tax of Rs. 30,14,80,247/-. The assessment order was revised by ld. CIT vide its order dated 27.03.2019. The ld. CIT before passing the order under section 263 issued a show-cause notice under section 263 dated 25.03.2019. In the show- cause notice, the ld. CIT noted that it is seen from the Notes of computation section 234D of Rs. 14.44 crore in the accounts which was estimated to be imposed on completion of assessment order otherwise for AY 2009-10 to 2011-12. It was further noted that the same is covered by Explanation 1(a) under section 115JB(2) of the Act and therefore, required to be added to the book profit. Omission to do so resulted in short computation to book profit by Rs. 14.44 crore.
The show-cause notice was duly contested by assessee by filing detailed reply vide its reply dated 25.03.2019. In the reply, the assessee objected for revision of the assessment order. The assessee in reply to the show-cause notice stated that the AO while passing the assessment order examined the issue in relation to the provision of interest under section 234D and has disallowed/added back to same while determining of Minimum Alternate Tax (MAT) provision. Accordingly, the assessee submitted that revising the item of income which has been specifically examined and disallowed would amount to taxing the same amount twice and that making the double disallowance. The assessee also objected that notice does not specify as to what prejudice has been caused to the revenue. In without prejudice and in alternative submission, the assessee further submitted that issue which is sought to be revised is a subject matter of appeal before Commissioner of Income –tax (Appeals) {CIT(A)}. In other alternative submission, the assessee further claimed that the provision for interest on income under assessee further submitted that in the impugned notice, it is mentioned that no addition is made on account of interest including under section 234D amounting to Rs. 14.40 crore, however, the AO has specifically made disallowance on this item in his order. The assessee prayed that the revision proceeding, initiated vide notice dated 15.03.2019, deserves to be dropped.
The ld. CIT not accepted the reply of assessee and held that the interest charged under section 234D towards withdrawal of excess refund is nothing but income tax and same is levied and accounted as such in the account of department, it is covered by Explanation 1(a) of section 115JB(2) and is required to be added with book profit and directed the assessing officer (AO) to pass the order by adding the interest under section 234D of Rs. 14.44 crore to the book profit. Thus, aggrieved by the order of ld. CIT, the assessee has filed the present appeal before the Tribunal.
We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that the assessment order passed by AO on the issue on which it was sought to be revised is neither erroneous nor prejudicial to the interest of revenue.
During the assessment the AO examined the issue in detailed and disallowed the same while passing the assessment order. The ld. AR of the assessee invited attention of the Bench to paragraph-17 of the assessment order and and disallowed Rs. 30,14,80,247/- while passing the assessment order. The ld. AR of the assessee submits that he has placed on record the computation of book profit for the purpose of section 115JB and the Notes appended thereto. The ld. AR of the assessee submits that the amount of Rs. 30,14,80,247/-, disallowed in para 17 of the assessment order consist of amount of Rs. 15.70 crore which represents the amount of interest under section 244A of Rs. 46.72 crore (received by assessee during the year on grant of pre-assessment refund for AY 2011-12) and credited to Profit & Loss Account that may be withdrawn on completion of assessment for the said AY otherwise, and (b) provision of interest under section 234D of Rs. 14.44 crore estimated to be imposed on completion of assessment order otherwise for AY 2009-10 to 2011-12 to possible withdrawal of pre- assessment refund granted under section 143(1)/154. The ld. AR of the assessee explained that the total amount of Rs. 30.14 Crore, disallowed by AO while passing the assessment order consists of Rs. 15.70 crore and Rs. 14.44 crore. The ld. AR of the assessee submits that all these facts are explained in the Notes appended to the calculation of book profit under section 115JB. The ld. AR of the assessee submits that against the disallowance, the assessee has filed already filed appeal before the ld. CIT(A) which is pending.
6 Mum 2019-ACC Limited 6. In other alternative submission, the ld. AR of the assessee submits that once the order is passed after examining the fact and detailed order is passed by taking one of the possible views, the order cannot be said to be erroneous. The ld. AR of the assessee further submits that no prejudice is caused to the revenue. The ld. CIT has not specified its show-cause notice as to how the order is prejudice to the interest of revenue. In support of his various submission, the ld. AR of the assessee relied upon the following decisions: CIT vs. Kwality Steel Suppliers Complex [Civil Appeal No. 815 of 2007 (SC)]. CIT vs. Gabrel India Ltd. [203 ITR 108 (Bom)], ITA No. 532/Mum/2014 Everest Industries Ltd. vs. CIT dated 21.08.2019 Panyam Cements & Minerals Industry Ltd. vs. Addl. CIT (ITA No. 706/Hyd/2013 dated 25.03.2015. Paharpur Cooling Towers Ltd. vs. PCIT (ITA No. 1096/Kol/2017) dated 11.12.2019. CIT vs. K. Sera. Sera Productions Ltd. [374 ITR 503 (Bom)] Amazia Developers Pvt. Ltd. vs. DCIT (ITA No. 2499/Mum/2017 dated 08.05.2019. Bibhuti B. Dasgupta (HUF) vs. CIT (ITA No. 5129/Mum/2012 dated 05.02.2018.
7. On the other hand, the ld. DR for the revenue supported the order of ld. CIT. The ld. DR for the revenue submits that no order has been passed by the ld CIT(A) on the issue, which is revised by ld CIT. Unless the order is passed by ld CIT(A), it cannot be said that the assessment order is merged with the appellate order of ld CIT(A). In support of his submission, relied upon the decision of Mumbai Tribunal in Sunjoy Dairy Farm vs. Second Income Tax Officer [(1985) 13 ITD 219 (Bom)].
through the assessment order passed under section 143(3) and the order of ld. CIT dated 27.03.2019 passed under section 263. We have noted that the AO while passing the assessment order passed a detailed assessment order running into 54/55 pages. We have further noted that after issuing show cause notice to the assessee, the AO examined the provision for interest on income tax. The AO in paragraph-17 of the assessment order made the following disallowances:
Provision for interest on Income Tax 17.1 In computing the book profit u/s 115JB, the assessee has not added provision for interest on income tax debited to the profit and loss account amounting to Rs. 30,14,80,247/-. During the course of assessment proceedings, the assessee was asked to explain why the same should not be added back in computation of book profits. The assessee referred to the notes forming part of computation of book profits u/s 115JB and explained that this does not represent interest charged under the Act and is only a provision following the mercantile system of accounting. The assessee stated that as per Explanation 2 to Section 115JB of the Act, income tax shall only include any interest charged under the Act. However, the amount of Rs. 30,14,80,247/- represents amount estimated by the assessee of the likely interest to be levied under the provisions of the Act. 17.2 The contention of the assessee is not acceptable. On perusal of the explanation, it is apparent that the amount paid or payable under the Act needs to be added back. Similar issue has been discussed in the AY 2012-13. Since there is no change in the facts, an amount of Rs. 30,14,80,247/- is added back to the book profits. Penalty proceedings u/s. 271(1)(c) of the I.T. Act is being initiated separately for furnishing inaccurate particulars of income. 9. The ld. CIT(A) before revision the assessment order issued show-cause notice identifying the issue that assessee has debited provision for interest under section 234D of Rs. 14.44 crore in account which was estimated to be 12 and/or the same is covered by Explanation-1(a) of section 115JB of the Act. Though, in reply to the sow-cause notice, the assessee objected to the proposed revision and its reply explained that the same amount has already been examined and disallowed by the AO while passing the assessment.
The Hon’ble Jurisdictional High Court in case of CIT Ss Gabriel India Ltd 203 ITR 108 (Bom), held that the power of suo moto revision under subsection (1) of section 263 of the Act is in the nature of supervisory direction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the CIT to exercise the power of revision under this sub section viz (i) the order should be erroneous and (ii) by virtue of the order being erroneous prejudice must have been caused to the interest of the revenue. And order cannot be termed as erroneous unless it is not in accordance with law. If ITO Act in accordance with law makes certain assessment; the same cannot be branded as erroneous by the CIT simply because according to him, the order should have been written more celebratory. This section does not visualise a case of substitution of the judgement of the CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous. This is may be visualised where the ITO while making the assessment examines the accounts, makes enquiries, applied his mind to the facts and circumstances of the case and determine the income either by accepting the accounts for by making some estimate made by the officer concerned was on the lower side and left to the CIT, he would have estimated the income at a higher figure than one determine by the ITO. That would not vest the CIT with power to re-examine the accounts and determine the income himself at the higher figure. This is because ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous, simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interest of revenue. But that by itself would not be enough to vest the CIT with the power to suo moto revision because the first requirement, namely that the order is erroneous, is absent.
Similarly, if an order is erroneous but not prejudicial to the interest of the revenue, then the power of suo moto revision cannot be exercised. And every erroneous order cannot be subject matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statue, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have material on record to satisfy in that regard. If the action of the authorities whether relevant objective factors were available from the records called for and examined by such authority.
The coordinate bench of this Tribunal in Everest Industries (supra) while considering the validity of order passed under section 263, when similar issue was pending adjudication before CIT(A) held as under;
25. We have considered the rival stands on this aspect carefully. Factually speaking, it is quite evident that the issues raised by the Commissioner with regard to the treatment of excise duty and sales tax incentives was indeed dealt with in the course of assessment proceedings by the Assessing Officer. It is also clearly emerging that the stand of the assessee was not accepted by the Assessing Officer and the matter has travelled to the CIT(A) for consideration. In this context, the implications of clause (c) of Explanation 1 to Section 263 of the Act, which read as under is quite relevant. “(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of theCommissioner under this sub-section shall extend [and shall bedeemed always to have extended] to such matters as had not beenconsidered and decided in such appeal.] It is evident from the above that the Commissioner is not empowered to exercise his jurisdiction on an issue which is subject matter of appeal before the CIT(A). In the present case, it is undisputed that the matter on the two issues in question is pending before the CIT(A). Thus, we find that the Commissioner has no jurisdiction to consider these issues in revisionary proceedings under Section 263 of the Act in terms of clause (c) to Explanation 1 to Section 263 of the Act.”
Now, adverting to the facts of the case in hand, it is not in dispute that the AO examined the issue of provision for interest on income tax and disallowed the amount of Rs. 30.14 Crore. Further, it is clearly evident from the Note No. 4, appended to the book profit under section 115JB that the amount which was directed to be disallowed, has already disallowed by AO while passing the assessment order. Once, the issue which has been examined double disallowance. We have noted that the ld. CIT instead of verifying the facts and considering the contents of the reply of assessee straightway directed the AO by passing the following order:
6.2. On the issue of addition of interest under section 234D of Rs. 14.44 crore with book profit.: In this regard, it is observed that the interest charged under Income Tax Act including under section 234D towards withdrawal of excess refund is nothing but income tax and same is levied and accounted as such in accounts of Department, it is covered by explanation 1(a) under section 115JB (2) of the IT Act and therefore required to be added with Book Profit.
In nutshell, the AO is directed to pass the order as per provisions of Income Tax Act, 1961 by making interest charged u/s 234D of Rs. 14.44 crores added to book profit. The AO is directed to give effect to the above mentioned order and issue demand notice.
We have further noted that in the reply to the show-cause notice, the assessee specifically contended that the assessee has already filed appeal before the CIT(A). The assessee also placed on record the copy of Form-35 [Appeal format before CIT(A)], wherein the assessee has raised specific grounds of appeal i.e.“That on the facts and in the circumstances of the case, the ld ACIT was not justified and grossly erred in adding Rs. 30,14,80,247/- being provision for interest on income tax in computing book profit under section 115JB, following stand taken by AO in assessment for the previous year”.
The ld. CIT-DR while making his submission fairly accepted that the appeal of assessee against the similar disallowance made by AO is pending before the ld. CIT(A), however, the ld DR made stressed that the order of ld. CIT(A) clause –(c) of Explanation-1 of section 263(1) of the Act. The contention of the ld DR for the revenue is not acceptable to us as in the present case the AO has already analysed one aspect of the matter which was pending before the CIT(A), the matter cannot be again relooked by the ld. CIT, on any other aspect as the order of the AO would merged with the order of CIT(A) in view of the decision of the Hon’ble Bombay High Court in CIT Vs K. Sera Sera Production Ltd (supra). Thus, the Commissioner had no power to touch upon the issues of disallowance of provision of Income tax in the impugned proceedings under Section 263 of the Act. It is evident from the above that the Commissioner is not empowered to exercise his jurisdiction on an issue which is subject matter of appeal before the CIT(A). In the present case, it is undisputed that the matter on the issues in question is pending before the CIT(A). Thus, we find that the Commissioner has no jurisdiction to consider these issues in revisionary proceedings under Section 263 of the Act in terms of clause (c) to Explanation 1 to Section 263 of the Act.
The ratio in the case law relied by the ld DR for the revenue in Sunjoy Diary Farm Vs Second Income tax Officer (supra) is not helpful to the revenue as the said case is based entirely different set of fact. In the said case the AO, while making the assessment by order, allowed this claim of investment allowance. Subsequently, however, the Commissioner was of the view that the order of the AO/ ITO was erroneous and prejudicial to the interests of the the issue in appeal, being order of AO was favourable to the assessee. However, in the case in hand the same subject matter is in appeal, which is revised by ld. CIT. 16. In view of the aforesaid facts and legal discussion, we are of the view that once the issue was examined by AO and disallowed while passing the assessment order and the same is subject matter of appeal before the ld. CIT(A), the ld. CIT was not justified in revising the assessment order, therefore, the assessee succeeded on his primary/first contention. Considering the fact that we have accepted the primary/first contention of ld. AR of the assessee, therefore, discussion on other alternative submission has become academic. We may made it clear that we have examined the validity of order passed under section 263 and not touched the merit of issue/claim disallowed by AO which is subject matter of appeal before the ld. CIT. 17. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 08-07-2020. Sd/- Sd/- (RAJESH KUMAR) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIALMEMBER Mumbai, Dt : 8th July, 2020 Sk/- Copy to: 1. Appellant