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Income Tax Appellate Tribunal, “A” BENCH,
Before: SHRI B.R. BASKARAN & SHRI PAWAN SINGH
assessee. Therefore, the assessment order passed by Assessing Officer is treated as erroneous as well as prejudicial to the interest of revenue.
Regarding third issue related with interest paid on late deposit of TDS, the ld. Pr. CIT concluded that deduction claimed on this account was wrongly allowed by Assessing Officer as the interest paid on late deposit of TDS even the nature of penalty. Regarding fourth issue on packing material, the ld. Pr. CIT accepted the contention of assessee; however, the ld. Pr.CIT concluded that no such details are on record to prove that the amount debited under the head “operating and administrative expenses” in P & L A/c is correctly accounted for. The Assessing Officer should have called and disallowance during the assessment proceeding before allowing the said claim. The assessee failed to do so and without enquiry and proper verification, the order passed by Assessing Officer is erroneous as well as prejudicial to the interest of revenue. The assessment was set-aside and the Assessing Officer was directed to pass the fresh assessment order after giving opportunity to the assessee.
Aggrieved by the order of ld. Pr.CIT, the assessee has filed the present appeal before us, raising the grounds of appeal which we have referred above.
We have heard the submissions of the ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. Hon’ble Supreme Court in Malabar Industrial Co Ltd (supra) has laid down the following principal;
“ A bare reading of section 263 of the Act 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo moto under it, is that the order of ITO is erroneous, so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied twin conditions, namely (1), the order of AO sought to be revised is erroneous and (2) it is prejudicial to the interest of revenue. If one of them is absent- if the order of ITO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue – recourse cannot be had to section 263 (1 ) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural Justice or without application of mind. The ‘phrase prejudicial to the interest of revenue’ is not an expression of art and is not defined in the Act. Understood it is ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the act is to levy and collect tax in accordance with the provision of the act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of revenue. The phrase prejudicial to the interest of revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO, cannot be treated as prejudicial to the interest of revenue, for example, when an 8
ITO, adopted one of the course permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. Unless the view taken by ITO is unsustainable in law.”
Hon’ble Jurisdictional High Court in case of CIT Vs Gabrial 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 ( 1) the order should be erroneous and ( 2) 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. Make 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 himself. The CIT on perusal of records, may be of opinion that the 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 9 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 1st 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 2nd 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 challenged before the court, it would be open to the courts to examine whether relevant objective factors were label from the records called for and examined by such authority”.
In view of the above legal position, now, we shall consider and examine the various issues on which the assessment order was revised. The ld. AR of the assessee submits that the ld. Pr.CIT issued notice under section 263 dated 18.03.2015. The ld. Pr.CIT wanted to revise the assessment order on four points/issues as mentioned in show-cause notice. For first issue related with disallowance under section 14A, the ld. AR for the assessee submits that during the assessment furnished the computation of income for relevant AY. The assessee also furnished the working of disallowance under section 14A. The assessee himself disallowed Rs. 5,53,856/-. The ld. AR of the assessee fairly submitted that there is no discussion in assessment order regarding disallowance under section 14A. However, the Assessing Officer considering the working furnished during the assessment proceeding. During the relevant period, the assessee earned no exempt income. The P&L A/c of year ended on 31.03.2010 is filed at page no.9 of Paper Book. The assessee has not shown any exempt income, therefore, no disallowance was warranted and the order passed by assessing officer is neither erroneous nor prejudicial to the interest of revenue. In support of his submission. The ld. AR for the assessee relied upon the decision of (1) CIT vs. Delite Enterprises (ITA No.110 of 2009) (Bom) (2) CIT vs. Holcim India (P.)
Ltd. (57 taxmann.com 28) (Del) (3) Chemnivest Ltd. vs. CIT (378 ITR 33) (Del) (4) Redington (India) Ltd. vs. ACIT (392 ITR 633 (Madras) (5)
CIT vs. Chettinad Logistics (P.) Ltd. (80 taxmann.com 221) (Madras) (6)
ACIT vs. M. Baskaran (152 ITD 844) (Chennai Trib) and (7) DCIT vs. M/s. Apex Realty Pvt. Ltd. (ITA No. 2855/M/2013 (Mum.). The ld AR submits that the order on this issue is neither erroneous nor prejudicial to the interest of justice.
On the other hand the ld. DR for the revenue supported the order of the authorities below. The ld DR further submits that the assessing officer while passing the assessment order has not made inquiry related with the 11 issue nor made any discussion in the assessment order , therefore, the assessment order in not only erroneous but prejudicial to the interest of justice.
We have considered the submissions of ld. representatives of the parties and perused the material on record and the various decisions relied by ld AR for the assessee. The perusal of the assessment order reveals that there is no discussion about the disallowance of section 14A in the assessment order. The ld PCIT treated the Assessment order as erroneous and prejudicial to the interest of the Revenue. We have perused the P&L Account. The assessee has shown profit on sale on investment of Rs.3,21,933/- in its statement of computation for assessment year 2011-
12. The assessee in its reply to the show cause notice has specifically contended that the assessee has not earned any exempt income during the year. The amount of Rs.3,21,933/- shown in the computation of income is not exempt income. It has been offered as short term capital gain.
Thus, there is no question of apportioning the expenses on exempt income. The Hon'ble Delhi High Court in the case of Chemnivest Ltd. vs. CIT (supra), held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Further, the Hon'ble Madras High Court in the case of CIT vs. Chettinad Logistics (P.) Ltd. (supra), also took a similar view that Section 14A cannot be 12 invoked where no exempt income was earned by the assessee. Therefore, in view of the factual and individual discussion, we find that the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, no revision under section 263 of the Act is warranted for disallowance under section 14A of the Act.
Second issue on which the assessment order was directed to be revised relates to deletion of assets from block of assets. The ld. AR for the assessee submits that all the details were provided to the assessing officer and they were verified by him before passing the order and after satisfying with the computation of disallowance is correct accepted the same. Merely the assessing officer has not discussed the issue and details verified therein would not render the order erroneous or prejudicial to the interest of revenue when the assessing officer passed order after due consideration. The ld PCIT totally misunderstood the issue.
On the other hand the ld DR for the revenue submits that the assessing officer has not examined the issue at all, which is evident from the assessment order itself, therefore, the assessment order is erroneous as well as prejudicial to the interest of revenue.
We have considered the submission of the parties and have perused the orders of authorities below. We have seen that there is no reference in the assessment order about this issue. The assessee contended before the Ld. PCIT that value of lease hold improvement was completely extinguished or written off by the assessee, therefore, it should not be reduced from the block of assets for the purpose of computation of depreciation. The assessee has not given any explanation regarding the write off of “furniture and fixtures”. As we have noted above there is no reference about the issue in the assessment order, if it was examine by the AO or not, therefore, non consideration of the issue by the AO makes the order erroneous as well as prejudicial to the interest of the revenue. Therefore, the contention of the ld. AR of the assessee on this issue is not acceptable.
Third issue on which order was revised relates to interest paid on late deposit of tax. The Ld. AR of the assessee submits that interest on TDS is compensatory in nature, hence, an allowable expense. The ld. AR relied on the following decisions:-
i) Lachmandas Mathuradas vs. CIT (254 ITR 799)(SC); ii) CIT vs. Oriental Insurance Co. Ltd. (315 ITR 102)(Kar.); iii) CIT vs. Emilio Ruiz Berdejo (320 ITR 190)(Bom.); iv) DCIT vs. Narayani Ispat Pvt.Ltd. (ITA No.2127/Kol/2014 dtd.30/08/2017); v) Oil and Natural Gas Commission (115 ITD 603)(Abd.) and vi) T.H.E. Makers (P.) Ltd. vs. ITO (14 ITR (Tribunal) 611)(Del.)
The DR supported the order of the ld. PCIT.
We have considered the rival submission of the parties and have gone through the assessment order and order passed by ld. PCIT. We have noted that this issue has not been examined by the Assessing Officer as there is no reference in the assessment order. Therefore, we uphold the order passed by ld. PCIT on this issue.
The fourth issue on which assessment was revised relates to packing material not routed through P&L Account. The ld. AR of the assessee submits that closing stock of packing material was routed from P&L Account. The same formed part of packaging material head shown in Schedule-17 -operating and administration expenses. On the other hand the ld. DR for the revenue submits that the AO allowed the issue without examining the issue during the assessment proceedings.
We have considered the submission of the parties and perused the orders of authorities below. Perusal of assessment order reveals that AO has not discussed the issue while allowing relief to the assessee. We have further noted that the ld. PCIT has recorded that the submission of AR found to be acceptable, however, it was further observed by the ld. PCIT that necessary details regarding opening stock, purchase, consumption/sale and the closing stock at the end of the year was not furnished. On the basis of his observation Ld. PCIT concluded that AO failed to made enquiry and proper application of mind, therefore, the order passed by