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Income Tax Appellate Tribunal, ‘B’ BENCH, BENGALURU
O R D E R
Per INTURI RAMA RAO, AM :
This is an appeal filed by the assessee-bank-bank, directed against the order of the ld. Commissioner of Income-tax, LTU, passed u/s 263 of the Income-tax Act,1961 ['the Act' for short].
Briefly, the facts of the case are that the assessee-bank is a public sector bank engaged in the business of banking. The return of income for the assessment year 2012-13 was filed on 28/09/2012 declaring income of Rs.285,34,62,890/-. Against said return of income, the assessment was completed by the Joint Commissioner of Income-tax, LTU, Bengaluru, [hereinafter referred to as ‘AO’] vide order dated 02/03/2015 passed u/s 143(3) of the Act at total income of Rs.357,52,05,790/- after making certain disallowances.
Being aggrieved, an appeal was preferred before the ld. Commissioner of Income-tax (Appeals) who had partly allowed the Page 2 of 9 appeal vide order dated 31/01/2017. Being aggrieved, assessee- bank preferred an appeal before the Tribunal which is pending disposal as of now.
Be that as it may, in the meantime, ld.CIT, LTU, Bengaluru, had issued show-cause notice dated 11/01/2015 u/s 263 proposing to revise the assessment order on the ground that following issues have not been examined by the AO. Therefore, held that the assessment order erroneous and prejudicial to the interest of revenue.
In response to show cause, the assessee-bank submitted vide letter dated 14/03/2017 that assessment order cannot be termed as erroneous and prejudicial to interests of revenue as the issues sought to be revised by the ld.CIT were either examined by AO during the course of assessment proceedings or does not entail any addition. It is submitted that in respect of excess provision written back of Rs.88,43,95,860/- that provision written back does not pertain to provision for bad debts in respect of rural branches. It was further submitted that provision written back does represent the following items:
It was further submitted that these provisions written back were not allowed as deduction in the earlier assessment year and therefore, the question of offering to tax in this assessment year does not arise.
6.1 In respect of disallowance of 14A, it was submitted that the assessee-bank-bank had offered disallowance of Rs.3,22,006/- under clause (iii) of rule 8D(2) of the IT Rules. AO, after examining the claim and verifying the calculation for disallowance of 14A, had accepted the claim and therefore, the question of any further disallowance of these items does not arise. 6.2 In respect of loss on sale of asset and prior period expenditure, it is submitted that as the asset was added back to taxable income by reducing the profit made on sale of assets of Rs.57,72,333/- and in respect of prior-period expenditure of Rs.2,92,08,697/- it was submitted that that crystallization of liability was examined by the AO during the course of assessment proceedings and the AO being satisfied with the claim allowed the same.
6.3 Regarding disallowance u/s 40(a)(ia) of Rs.2,00,71,768/- it was submitted that the assessee-bank-bank itself disallowed the same in the statement of computation of income, the question of further disallowance does not arise and this issue also was verified by the AO during the course of assessment proceedings.
The ld.CIT, after considering the above submissions held that disallowance u/s 14A was made by the AO only under clause (iii) of rule 8D(2) but failed to make under clause (i) and (ii) of rule 8D(2). The ld.CIT was of the opinion that the fact that disallowance under these clauses in the earlier years was deleted by the ITAT
Page 4 of 9 should not come in the way of making disallowance in this year also as the revenue was in appeal before the Hon’ble High Court against the order of the ITAT. As regards loss on sale of assets and prior period expenditure, the ld. CIT(A was of opinion that details of expenditure were not verified by the AO. As regards loss on sale of assets u/s 40(a)(ia) and prior period expenditure and disallowance u/s 14A, the ld.CIT was of the view that these items were not verified by the AO and hence the assessment order was erroneous and prejudicial to the interests of revenue and directed the AO to verify the above issues and set aside the issues to the file of the AO for fresh assessment after affording an opportunity of being heard to the assessee-bank.
Being aggrieved by the order of revision u/s 263, the assessee-bank is before us in the present appeal raising the following grounds of appeal:
9. Learned AR of the assessee-bank vehemently contended that the assessment order cannot be termed as erroneous and prejudicial to the interests of revenue as the issues sought to be revised by the ld.CIT are either examined by the AO or no disallowance on the issues was warranted even after verification and thorough examination, it does not result in further addition to assessed income; he reiterated the same submissions and took us to the information filed during the course of assessment proceedings placed at pages 38 & 39 of the paper book. He further contended that in the absence of the ld.CIT reaching a concrete conclusion that the assessment order is erroneous no power of revision can be exercised by him.
On the other hand, ld.CIT(DR) submitted that the issue of excess provision written back and prior period expenditure etc., were not examined by the AO. The assessee-bank merely submitted the information but the AO had not caused necessary enquiries as the circumstances justified and the ld.CIT(DR) was justified in exercising the power of revision. As regards disallowance
Page 6 of 9 u/s 40(a)(ia) of the Act, ld.CIT(DR) submitted that the ld.CIT has given an opportunity of hearing to the assessee-bank. She relied on the decision of the Hon’ble Supreme Court in the case of CIT vs. Amitabh Bachchan (384 ITR 200)(SC); decision of the Hon’ble Karnataka High Court in the case of CIT vs. Infosys Technologies Ltd. (2017) 17 taxman.com 203(Kar) and the decision of co- ordinate bench in dt.13/01/2017 in the case of M/s.Mindtree vs. CIT.
We heard rival submissions and perused the material on record. The solitary issue in the present appeal is whether the ld.CIT was justified in exercising power of revision vested with him under the provisions of section 263 of the Act. From the perusal of the order of the ld.CIT, it is evident that the ld.CIT had exercised power of revision on the ground of non-examination of the issue by the AO. However, during the course of proceedings u/s 263, assessee-bank had maintained that this issue was thoroughly examined by the AO and he also filed copies of submissions made before the AO. But the ld.CIT, without giving concrete finding as to how the order of assessment is erroneous, has set aside the assessment order to the AO. This action of the ld.CIT, in our considered opinion, is not in consonance with the settled position of law. The assessment can be termed as erroneous and prejudicial to interests of revenue only in case where issues were not examined by the AO and the material on record suggest that addition of an item is warranted. As held by us supra, the assessee-bank-bank had made a detailed submission before the ld.CIT as to how each of the issues sought to be revised by the ld. CIT, were examined by AO. The ld.CIT, without coming to a concrete conclusion that the addition was warranted, had merely set aside the assessment. The Hon’ble Delhi High Court in the case of ITO vs. D.G.Housing Projects Ltd. (2012) 343 ITR 329(Del) had deprecated this approach on the part of the ld. CIT in the following words:
Page 7 of 9 “16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time Page 8 of 9 when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.
In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that Page 9 of 9 the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.”
In the decisions relied upon by the ld.CIT(DR), the issue sough to be revised by the ld.CIT were not examined by the AO. Hence the Hon’ble High Court held that revision is justified, whereas, in the present case, the assessee-bank had conclusively demonstrated that the issues were examined by the AO or the issue does not result in addition even after examination/verification. Therefore, we are of the considered opinion that the ld.CIT was not justified in exercising power of revision u/s 263 of the Act.
In the result, the appeal filed by the assessee-bank is allowed.