DY. COMMISSIONER OF INCOME TAX, CIRCLE-SHILLONG, SHILLONG vs. THE MEGHALAYA COOPERATIVE APEX BANK LIMITED, SHILLONG

The assessee has filed the cross objection raising the following grounds of appeal:

The brief facts of the case are that the assessee e-filed the return of income on 24.01.2019 for the assessment year 2018-19 with total return income of Rs. 21,56,75,190/-. The case was selected for I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. complete scrutiny on account of several issues. The assessee responded to the notices issued. The Ld. AO considered the reply filed and assessed the income at Rs. 45,74,27,754/-. The addition was made on account of the under reporting of commission income, disallowance out of expenses debited for earning exempt income, disallowance u/s 40(a)(ia) of the Act for deduction claimed on salary and interest. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who allowed the relief on account of addition made for mismatch in GST return vis-à-vis the turnover shown in the profit and loss account, disallowance u/s 40(a)(ia) of the Act for which the Ld. AO was directed to re-compute the disallowance and grant exemption u/s 10(26) of the Act, even though the evidence for claiming exemption u/s 10(26) of the Act was neither produced before the Ld. AO nor was produced during the course of the appellate proceedings. For claim of deduction u/s 36(i)(viia) of the Act at the rate of 8.5% from 7.5% claimed by the assessee, since no revised return of income was filed, therefore, the modified claim was not allowed and the appeal was partly allowed. Aggrieved with the appeal order, the Revenue has filed the appeal before the Tribunal and the assessee has also filed the cross objection. In the cross objection filed by the assessee the assessee has requested for allowing the claim of deduction u/s 36(i)(viia) of the Act at the rate of 8.5% on the basis of the finding of the Tribunal in AY 2017-18 vide ITA No. 130/GTY/2023 order dated 29.08.2024. 4. Rival contentions were heard and the record and the submissions made have been examined. The revenue is aggrieved with the direction issued by the Ld. CIT(A) to the Ld. AO thereby, partly restoring the appeal to the Ld. AO which power has been withdrawn from the Ld. CIT(A) by the amendment in clause (a) to sub-section (1) of section 251 I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. of the Act with effect from 01.06.2001. Further, the evidence for claiming exemption u/s 10(26) of the Act was not produced before the Ld. AO during the assessment proceedings nor even before the Ld. CIT(A) during the appellate proceedings. The finding of the Ld. CIT(A) is as under in this respect: “6.2 I have perused the assessment order grounds of appeal and submissions filed by the appellant. I find from the assessment order that the AO had made addition of Rs.25,73,50,316/- u/s 40(a)(ia) being 30% of the various expenses due to non deduction of TDS on the ground that total amount liable for TDS was worked out to Rs.171,56,68,772/- but AO after allowing 50% reduction on account of possibility of payments below the statutory limit for deducting TDS, adopted Rs.85,78,34,386/ -liable for disallowance of 30% u/s 40(a)(ia) and accordingly made disallowance of Rs.25,73,50,316/-. However, I find from the submission of the appellant that certain amounts were not liable for TDS but the same have been considered for disallowances. Further the cases covered by exemption u/s 10(26) and Form No.15G/15H have not been considered since the appellant could not furnish the supporting evidences. In respect of salary expenses, I find that out of total expenses debited to profit and loss account of Rs.44,20,94,895/- has been considered for disallowance. However the appellant has claimed that the amount of Rs.38,83,13,323/- is not liable for TDS. Further the appellant has claimed that the exemption u/s 10(26) is not allowed by the AO. I find that the evidence for claiming exemption u/s 10(26) was not produced before the AO during the assessment proceedings. The same is also not produced during the appellate proceedings. However considering the facts of the case, the AO is directed to recomputed the disallowance and also allow the exemption u/s 10(26) on production of supporting evidence. Thus ground on this point is partly allowed. In respect of interest expenses, the appellant has claimed that interest on saving bank deposits is not liable for TDS and the cases covered by exemption u/s 10(26) and Form No.15G/15H have not been considered. I find that interest on saving bank account is not liable for TDS, hence disallowance needs to be recomputed. I find that the evidence for claiming exemption u/s 10(26) was not produced before the AO during the assessment proceedings. The same is also not produced during the appellate proceedings. However considering the facts of the case, the AO is directed to re-compute the disallowance and also allow the exemption u/s 10(26) and also consider the cases covered by form No.15H/15G on I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. production of supporting evidences. Thus ground on this point is partly allowed.

Thus, during the course of appeal, the Ld. AR requested that since the assessee has necessary evidence for the claim of exemption u/s 10(26) of the Act, necessary directions as in AY 2017-18 may be issued to the Ld. CIT(A) for verification of the claim of the assessee by the Tribunal.

We have considered the facts and find that in the absence of the necessary evidence, the Ld. CIT(A) directed the Ld. AO to allow the exemption from the liability of TDS on account of certificates u/s 10(26) of the Act and also carry out certain other verifications, which is tantamount to setting aside the order to the Ld. AO for verification and necessary action, which power is not available to the Ld. CIT(A) now and therefore, the Ld. CIT(A) exceeded his juri iction. The relevant extract from the order of the coordinate bench in 130/GTY/2023 for A.Y. 2017- 18 is as under:

We have carefully considered the arguments of the ld. D/R as well as ld. A/R and have also perused the findings of the ld. CIT(A). While it is clear that the Department has not really challenged the case on the merit inherent in the action of the ld. CIT(A), but has raised a legal issue whether the remanding back to the file of the ld. AO in the manner in which it has been done, could be legally tenable or not. For adjudicating on this, the provisions of Section 251(1) of the Act deserve to be recapitulated as under: “251. (1) In disposing of an appeal, the Commissioner (Appeals) shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment; I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. (aa) in an appeal against the order of assessment in respect of which the proceeding before the Settlement Commission abates under section 245HA, he may, after taking into consideration all the material and other information produced by the assessee before, or the results of the inquiry held or evidence recorded by, the Settlement Commission, in the course of the proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul the assessment; (b) in an appeal against an order imposing a penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce the penalty; (c) in any other case, he may pass such orders in the appeal as he thinks fit.”

Special emphasis needs to be placed on the amendment to Section 251(1a) of the Act, vide the Finance Act, 2001 with effect from 01.06.2001, and the same deserves to be highlighted and reproduced as under: “The portion beginning with the words "or he may set aside" and ending with the words "on the basis of such fresh assessment;" omitted by the Finance Act, 2001, w.e.f. 1-6-2001.”

It is clear from a reading of the Section as it stands now and after comparing it with the language of the section as it stood prior to the amendment, it is clear that the word “set aside” has been deliberately omitted indicating the legislators’ intention to take away such powers from the ld. CIT(A). A look at judicial precedence in this matter supports the view that the interpretation of Section 251(1a) of the Act cannot permit a ld. CIT(A) in using language or giving directions in such a manner that the action is tantamount to setting aside. Thus, the portion extracted (supra) from the ld. CIT(A)’s order makes it clear that instead of a clear-cut quantification of the amounts at his level he has broadly decided the matter in favour of the assessee but has left the nitty-gritty to the assessing officer. It is felt that such action is not permissible after the amendment to the Section 251(1) of the Act (supra). Considerable strength is drawn from the case of Arun Kumar Bose vs. ITO reported in [2023] 458 ITR 32 (Calcutta) wherein the Hon'ble Calcutta High Court has held that the ld. CIT(A) cannot set aside or remand back any matter to the ld. AO. The following extracts from the said order are necessary at this stage: “■ Section 251 deals with the powers of the Commissioner (Appeals). Sub- section (1) states that in disposing of an appeal the Commissioner (Appeals) shall have the powers as enumerated in clauses (a), (aa), (b), (c). Insofar as the case on hand, clause (a) of section 251(1) should be relevant, which states in an appeal against the order of assessment the Commissioner (Appeals) may confirm, reduce, enhance or annul the assessment. On a reading of the I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. Finance Act, 2001 (Circular No. 14 of 2001) the Commissioner of Appeals had no power to remand the matter back to the Assessing Officer for fresh assessment in accordance with the direction given by the Commissioner (Appeals) after making such further enquiry as may be necessary. Though such power was conferred on the Commissioner (Appeals), the said provision stood omitted by the Finance Act, 2001. In the explanatory notes on the provisions relating to direct taxes, the powers of the Commissioner (Appeals) has been dealt with. [Para 3] ■ In the light of the above statutory embargo, the Commissioner could not have remanded the matter back to the Assessing Officer after having decided the case in favour of the assessee in its entirety. [Para 4] ■ The revenue points out that in the findings recorded by the Commissioner (Appeals), the expression 'prima facie' has been used which shows that the Commissioner (Appeals) had wanted a fresh exercise to be done by the Assessing Officer and, therefore, it would have been well open to the Commissioner (Appeals) to call for a remand report and thereafter to enquiry into the matter and proceed to take decision. Therefore, it is the submission that the case should be remanded back to Commissioner (Appeals) to undertake such an exercise. [Para 5] ■ Though in the order passed by the Commissioner (Appeals), the word 'prima facie' has been used, from a cumulative reading of an order passed by the Commissioner (Appeals) it is found that the case has been discussed on merits and thereafter a finding has been recorded that the Assessing Officer was not justified in making the addition and there was a positive direction to delete the addition. If such is the finding, mere use of the word 'prima facie' could not make prima facie view as the Commissioner (Appeals) has discussed the matter elaborately taking into the consideration the factual position. Before the Tribunal, the assessee had specifically raised the ground that the Commissioner (Appeals) exceeded the limits of powers statutorily bestowed as per section 251(1)(a) and grossly erred in law in restoring the case to the Assessing Officer for action in terms of the order dated 23-11-2011 passed by the Commissioner (Appeals). Though, such a specific ground raised by the appellant before the Tribunal and noted by the Tribunal in the impugned order, this aspect has not been dealt with by the Tribunal. Thus, not only the Commissioner (Appeals) committed an error of law by remanding the matter to the Assessing Officer for a fresh consideration after having held in favour of the assessee, the Tribunal also did not deal with the said issue. In the light of the statutory embargo, the order of remand passed by the Commissioner (Appeals) is not tenable in law and consequently, the same is required to be set aside as well as the order passed by the Tribunal. [Para 6] ……….. I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited.

Furthermore, in another case before the Hon'ble Kerala High Court in the case of CIT vs. P. Premkumar reported in [2018] 404 ITR 275 (Kerala) it has been held as under: “The Scope of Appeal & The Powers of Appellate Authority ■ Section 251 spells out the powers of the Commissioner (Appeals). [Para 29] ■ The provision empowers the appellate authority, in an appeal against an order of assessment, to confirm, reduce, enhance, or annul the assessment. Under the amended section 251, the Appellate Commissioner may confirm, reduce, enhance, or annul the assessment, but he could not refer the case back to the Assessing Officer for making a fresh assessment; nor can he direct the Officer to decide in accordance with his directions. [Para 47]”

Considering the discussion above and the persuasive value of the judgements of the two High Courts discussed (supra) it is held that the ld. CIT(A) should have quantified the amounts at his level without resorting to any remanding back as has been done in the body of the impugned order. We, accordingly set aside the matter to the file of the ld. CIT(A) to clearly quantify the relief that he intended to give to the assessee and admit any fresh evidence, if so required, under Rule 46A of the Rules and thereby pass a speaking order.

In the result, the appeal of the Revenue is allowed.

1 Hence, ground nos. 1, 2 & 3 are allowed and the order of the Ld. CIT(A) is set aside and as held in AY 2017-18, the Ld. CIT(A) is directed to call for the necessary evidence from the assessee and decide the appeal in accordance with the provision of section 250(6) of the Act keeping in view Rule 46A of the Income Tax Rules, 1962. The assessee shall not seek unnecessary adjournment and shall file necessary evidence for claim of the deduction.

Ground no. 4 is general in nature and does not require any separate adjudication.

As regards the cross objection of the assessee, for the AY 2018- 19, the deduction u/s 36(1)(viia) of the Act is limited to an amount not I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. exceeding eight and one-half per cent of the total income computed before making any deduction under the clause and Chapter VI-A and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner and the rate of 8.5% has been substituted 7.5% with effect from 01.04.2018 applicable for A.Y. 2018-19. Since this is a statutory deduction available to the assessee, the same is allowable and the Ld. AO is directed to allow the same as per law after seeking necessary evidence from the assessee and the cross objection of the assessee is allowed.

In the result the appeal of the Revenue is allowed and the Cross Objection of the assessee is also allowed. Order pronounced on 29th January, 2025 under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963. [Manomohan Das] [Rakesh Mishra] Judicial Member Accountant Member Dated: 29.01.2025 Bidhan (P.S.) I.T.A. No.: 50/GTY/2024 Assessment Year: 2018-19 The Meghalaya Cooperative Apex Bank Limited. Copy of the order forwarded to:

CIT-

CIT(DR), Guwahati Benches, Guwahati.

Guard File. //// By order