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Facts
The assessee filed an appeal against the order of the PCIT under section 263, which revised the assessment order. The PCIT found issues with the deduction of health and education cess, the DIT relief, and the deduction of bad debts, deeming the original assessment order erroneous and prejudicial to revenue.
Held
The Tribunal held that the PCIT erred in invoking Section 263. Regarding health and education cess, the assessee had already withdrawn the claim. For DIT relief and bad debt deduction, the Assessing Officer had conducted proper inquiries and verified the claims during the original assessment. Therefore, the PCIT's action was based on an internal audit objection without considering the assessee's submissions and the AO's verification.
Key Issues
Whether the PCIT correctly assumed jurisdiction under Section 263 of the IT Act when the Assessing Officer had conducted proper inquiries and verified the claims during the assessment proceedings.
Sections Cited
263, 143(3), 155(18), 154, 40(a)(ia), 90, 115JB, 234D, 244A(1), 142(1), 36(1)(vii), 36(1)(viia), 144B
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Income Tax Appellate Tribunal, MUMBAI BENCH ‘E’, MUMBAI
Before: SHRI AMARJIT SINGH, HON’BLE & SHRI ANIKESH BANERJEE, HON’BLE
O R D E R PER AMARJIT SINGH, AM:
This appeal of the assessee for the assessment year 2019-20 is directed against the order dated 29.03.2024 passed by the ld. Commissioner of Income-tax (Appeal), NFAC, Delhi. The assessee has raised the following grounds of appeal:
1. In the facts and in the circumstances of the case and in law, the Ld. PCIT erred in assuming jurisdiction u/s. 263 of the Act when the assessment order dated 29.09.2021 passed by the Ld. AO u/s. 143(3) is neither erroneous nor prejudicial to the interests of the revenue. The action of the Ld. PCIT İs illegal, unjustified, arbitrary and against the facts of the case. Accordingly, it is humbly prayed that the Order dated 29.03.2024 passed u/s, 263 be quashed/ cancelled being illegal and bad-in-law.
2. In the facts and in the circumstances of the case and in law, the Ld. PCIT erred in assuming jurisdiction u/s. 263 of the Act when the assessment order dated 29.09.2021 passed by the Ld. AO u/s. 143(3) is (i) The AO had made proper inquiries and applied his mind to the issues under consideration before framing the Order of assessment dated 29.09.2021 u/s. 143(3) of the Act.
(ii) The assumption of jurisdiction u/s. 263 by the Ld. PCIT was solely based on the audit objection raised by the audit wing of the income-tax department.
(iii) The Ld. PCIT has violated the principles of natural justice by not taking proper cognizance of the submissions filed by the appellant in passing the Order dated 29.03.2024 u/s. 263 of the Act.
(iv) The Ld. PCIT has erred in setting aside the Order of assessment dated 29.09.2021 for making fresh inquires and verification.
2.1 Accordingly, it is humbly prayed that the Order dated 29.03.2024 passed u/s. 263 be quashed/ cancelled being illegal and bad-in-law.
WITHOUT PREJUDICE TO THE GROUND NO. 1 AND 2 ABOVE AND IN THE ALTERNATE:
Deduction of Health and Education Cess of Rs.l,76,53,204/- and Rs.40,63,806/- in computing "income from business" and "Income from other sources" respectively:
In the facts and in the circumstances of the case and in lawN, the Ld. PCIT erred in holding that the Order of assessment dated 29.09.2021 passed u/s. 143(3) allowing the deduction of health and education cess of Rs.1,76,53,204/- and Rs.40,63,806/- in computing "income from business'" and "Income from other sources" respectively as erroneous and prejudicial to the interest of the revenue ignoring the fact that in terms of applicable provisions of Section 155(18), the AO is duty bound to pass rectification Order u/s. 154 disallowing the captioned claim as the appellant has filed Form 69 withdrawing such claim and hence, Section 263 has no application. Accordingly, it is humbly, prayed that the Order dated 29.03.2024 passed u/s. 263 be quashed/cancelled being illegal and bad-in-law as regards deduction of health and education cess.
Credit for foreign taxes paid (DIT relief) - Rs.51,96,98,117/:
Export Import Bank of India A.Y. 2019-20 In the facts and in the circumstances of the case and in law, the Ld. PCIT erred in holding that the Order of assessment dated 29.09.2021 passed u/s. 143(3) allowing alleged excess credit of foreign taxes paid of Rs.48,91,74,435/- as erroneous and prejudicial to the interest of the revenue and consequently also erred in directing the AO to verify the claim of foreign taxes paid of Rs.51,96,98,117/- as the basis adopted by the appellant is in accordance with provisions of Section 90 r.w. DTAA entered into between India and UK/ Singapore/ Australia and has been consistently applied in past years, which has been accepted by the income tax department and accordingly ought to have accepted the same. Without prejudice to the same, the basis adopted by Ld. PCIT of allowing foreign tax credit based on revenue earned from domestic and international operations is not in accordance with the law. Accordingly, it is humbly prayed that the Order dated 29.03.2024 passed u/s. 263 be quashed/ cancelled being illegal and bad-in-law as regards relief for foreign taxes paid of Rs. 51,96,98,117/-.
Deduction of bad-debts written-off in computing book profit u/s. 115JB - Rs.1899,03,75,859/- In the facts and in the circumstances of the case and in law, the Ld. PCIT erred in holding that the Order of assessment dated 29.09.2021 passed u/s. 143(3) as erroneous and prejudicial to the interest of the revenue and consequently, also erred in directing the AO to verify as to whether the bad-debts written-off of Rs.l899,03,75,859/- is debited to the Profit & Loss Account ignoring the fact that net profit for the year of Rs.81,64,75,448/- is after reducing the amount of Rs.1880,60,11,033/- debited to profit and loss account under the head "provision for loan losses/contingencies, depreciation on investments" which includes bad- debts written-off of Rs. 1899,03,75,859/-, as the said details were submitted in the course of assessment proceedings and the same is already verified by the AO while framing the assessment order u/s. 143(3) of the Act for the assessment year under reference. Accordingly, it is humbly prayed that the Order dated 29.03.2024 passed u/s. 263 be quashed/ cancelled being illegal and bad-in-law as regards computation of book profit u/s. 115JB of the Act.
Interest u/s. 234D of the Act In the facts and in the circumstances of the case and in law, the Ld. PCIT erred in holding that the Order of assessment dated 29.09.2021 passed u/s. 143(3) as erroneous and prejudicial to the interest of the revenue on Export Import Bank of India A.Y. 2019-20 account of non-charging of interest u/s. 234D on the alleged excess refund issued of Rs.19,47,06,390/- ignoring the fact that since the refund determined in terms of the captioned Order of assessment was without granting interest u/s. 244A(1) of Rs.21.30.31.812/-, there is no excess issuance of refund and hence, the question of charging of interest u/s. 234D Accordingly, it is humbly prayed that the Order dated 29.03.2024 passed u/s 263 be quashed/cancelled being illegal and bad in law as regards charge of interest u/s 234D of the Act.”
It is humbly prayed that the reliefs as prayed for hereinabove and/or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice should be granted.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 2 Fact in brief is that return of income declaring total income of Rs. 1,61,58,48,960/- was filed on 23.06.2020. The case was subject to scrutiny assessment and order u/s 143(3) r.w.s. 144B of the Act was passed on 29.09.2021 assessing the total income at Rs. 1,63,42,75,463/-. Subsequently, on perusal of the case on record, the PCIT observed that assessee claimed deduction for health and education cess amounting to Rs. 1,76,53,204/- under the head of business Income and Rs. 40,63,806/- under the head of capital gain. However, in view of amendment made as per Finance Act, 2022 with retrospective effect from F.Y. 2004-05 health and education cess are not allowable deduction as per the provision of section 40(a)(ia) of the Act.
The PCIT further observed that assessee has claimed DIT relief of Rs. 57,10,81,216/- which was allowed during the assessment proceedings. The PCIT after referring the working of relief u/s 90 of the I.T. Act as per Annexure D filed by the assessee was of the view that there was excess allowance of DIT relief of Rs. 48,81,74,435/- in the year under consideration. The ld. PCIT was of the view that during the Export Import Bank of India A.Y. 2019-20 year assessee has earned income in India and abroad to the amount of Rs. 161.58 and the assessee had not given exact income earned in UK and Singapore as per I.T. Act. He further stated that out of total revenue of Rs. 90.97 billion earned in F.Y. 2018-19 only 5.02% billion (5.52%) pertained to international operation and observed that profit from international transaction would be approximately to the amount of Rs. 8.92 crore (5.52% of 161.58 crore). He also observed that DIT relief at the rate of 5.52 percent would be Rs. 3,15,23,683/-. The ld. PCIT was of the view that assessee was allowed DIT relief of Rs. 51,96,98,118/- and there was excess allowance of DIT relief of Rs. 48,91,74,435/- in the year under consideration.
The ld. CIT(A) after perusal of book profit observed that while computing book profit under the provisions of section 115JB of the Act an amount of Rs. 18,99,03,75,859/- was claimed as deduction towards write off of bad debt. The ld. PCIT was of the view that bad debt is not allowable as deduction under the prescribed adjustment to net profit permitted as per explanation u/s 115JB of the Act.
The ld. PCIT has also seen that a refund of Rs. 189,89,60,890/- has already been issued to the assessee after processing return u/s 143(1) of the Act. Therefore, applicability of interest u/s 234D of the Act is required to be determined.
After referring the aforesaid issues, the ld. PCIT stated that assessing officer has passed the order u/s 143(3) r.w.s 144B of the Act dated 29.09.2021 without making specific enquiries or verification on the aforesaid issues. Accordingly, the show cause notice was issued to the assessee on 19.03.2024 to explain why not the order passed u/s 143(3) r.w.s. 144B of the Act we treated as erroneous in so far as it is Export Import Bank of India A.Y. 2019-20 prejudicial to the interest of the revenue. In response to the show cause notice, the assessee has made detailed submission that during the course of assessment proceedings, the AO had called for the requisite details/explanation on all the points mentioned by the ld. PCIT and after considering those details/explanation framed opinion whereby assessment order was passed u/s 143(3) of the Act dated 29.09.2021 for the A.Y. 2019-20 and submitted that the said order is not erroneous in so far as it is prejudicial to the interest of the revenue. The detailed submission provided by the assessee is reproduced at page no. 6 to 40 in the order passed by the ld. PCIT u/s 263 of the Act. The ld. PCIT has not accepted the submission/explanation offered by the assessee that during the course of assessment the AO has made a requisite enquiries/verification and details were submitted on all the points raised by the ld. PCIT. The ld. PCIT has held order passed u/s 143(3) r.w.s. 144B of the Act dated 29.09.2021 is erroneous on the following points:
“10.1 The AO has not considered the stand of revenue with regard to the allowability of deduction of Health and Education Cess. 10.2 The AO has not considered to DTAAs of the India with foreign countries where the assessee has branches. 10.3 The assessee’s claim that the amount of bad debt was debited to the profit and loss account has not been verified by the AO.”
Therefore, the ld. PCIT held that the order passed u/s 143(3) r.w.s. 144B of the Act is erroneous so far as it is prejudicial to the interest of revenue and set aside the order passed by the assessing officer and directed the assessing officer to verify the claim of the assessee and decide the issue accordingly.
Export Import Bank of India A.Y. 2019-20 8. During the course of appellate proceedings before us, the ld. Counsel referred the detailed submission provided by the assessee to the ld. PCIT as reproduced in his order showing that assessing officer has already verified all the points on the issues on which the ld. PCIT has held that order passed by the assessing officer is erroneous as far as it is prejudicial to the interest of the revenue. The ld. Counsel also referred page no. 112 of the paper book filed before us comprising application of the assessee filed on Form No. 69 whereby the claim of surcharge and cess was withdrawn by the assessee. The ld. Counsel referred the copies of various submission filed by the assessee during the course of assessment proceedings as placed in the paper book in response to various queries raised by the assessing officer referred by the ld. PCIT in the order u/s 263 of the Act. The ld. Counsel has also referred the copies of notices issued by the assessing officer u/s 142(1) of the Act during the course of assessment proceedings wherein various details on the issues referred by the PCIT have been asked from the assessee. The ld. Counsel also referred page no. 104 of the paper book and submitted that the ld. PCIT has passed order u/s 263 of the Act purely on the basis of internal audit objection raised by the audit party without considering the corresponding submission of the assessee and verification of all the issues already made by the assessing officer during the course of assessment proceedings in the case of the assessee.
On the other hand, ld. DR supported the order of ld. PCIT.
Heard both the sides and perused the material on record. Without reiterating the fact as discussed supra in this order, the ld. PCIT held that order passed by the assessing officer u/s 143(3) r.w.s. 144B dated 29.09.2021 is erroneous and as far as it is prejudicial to Export Import Bank of India A.Y. 2019-20 the interest of revenue on the ground that assessing officer has not considered the allowability of deduction of health and education cess nor considered the DTAAs of India with foreign countries and also not verified claim of bad debt debited to the P & L Account by the assessee. On perusal of submission filed by the assessee before the assessing officer during the course of assessment as placed in the paper book in respect of claim of health and education cess it is noticed that assessee has filed Form No. 69 electronically on 27.03.2023 wherein assessee has withdrawn the claim of deduction on account of health and education cess much before the order u/s 263 of the Act passed by the ld. PCIT on 29.03.2024. Therefore, we find that direction given by the ld. PCIT on this issue is not relevant since assessee has already withdrawn the claim of deduction as discussed.
In respect of DIT relief, the assessing officer has made specific queries by issuing of notice u/s 142(1) of the Act dated 09.08.2021 as per serial no. 15 of the Annexure, the extract of the same is reproduced as under:
“1. Details of income accrue or arise in India as well as outside India during the year.
Detailed note on the basis of relief claimed.
Tax Residency Certificate in case of Non-Resident.
Details of taxes paid outside India on the income accrue or arise outside India with documentary evidence.
Details of places where services are rendered against the income claimed to be accrued or arose outside India.
File a detailed note proving that the income stated to be earned outside India is not the part of total income as per Indian Income Tax Act.
Export Import Bank of India A.Y. 2019-20 7. Whether the income on which tax relief has been claimed u/s 90/91 was received in India, if yes, the copy of bank statement as a supporting evidence.
Copy of terms of agreement with parent company for employment in abroad.
Details of tax paid in foreign country/specified territory and applicable rates of taxes.
Copy of bank statement maintained in India, if any. 16. 1) With respect to the Share Capital/Other Capital shown during the year under consideration, kindly submit the below specified details: a) Name and address of the shareholders. b) PAN of the shareholders. c) Face Value of each share. d) Number of shares allotted to each shareholder. e) Total value of the shares allotted to each shareholder. f) Payment received from each shareholder during the financial year.”
In response, the assessee vide submission dated 25.08.2021 has explained that it has claimed total relief of tax of Rs. 51,96,98,117/- u/s 90 of the Act. It was also explained that assessee has branch at London and assessee has claimed relief of Rs. 48,07,32,046/- u/s 90 for taxes paid in UK by the London Branch as per the relevant article of Double Taxation Avoidance Agreement (DTAA) and the assessee has also filed the copy of return of income filed by the London Branch. The assessee has also made detailed submission before the assessing officer in respect of credit of taxes paid in terms of section 90 of the Act.
The brief extract of the submission made by the assessee before the assessing officer during the course of assessment is reproduced as under:
4.1 During the year, the assessee has claimed total relief of tax of Rs. 51,96,98,117/- under section 90 of the Act. The assessee has a branch at London. London branch files its return of income with United Kingdom (UK) Tax Department as per the laws of U.K. income earned by the London Branch is offered to tax in India and accordingly, the assessee has claimed relief of Rs. 48,07,32,046/- under section 90 for taxes paid in UK by the London Branch as per the relevant article of Double Taxation Avoidance Agreements (DTAA). Copy of return of income filed by the London Branch is enclosed herewith (page nos. 493 to 503). For necessary working of relief claimed, reference is drawn to Annexure D forming part of computation of income which for easy reference is enclosed herewith (page nos. 504).
4.2 The assessee also grants loans to foreign parties (non-residents). Some of the parties, on interest income have deducted tax at source as per the laws of their respective countries. Since India has DTAA with these countries, as per the relevant article of the respective DTAA, the assessee is entitled for credit of such taxes paid in terms of section 90 of the Act. Accordingly, relief of Rs. 3,89,66,072/- has been claimed in the return of income for the assessment year under reference. For necessary working of relief claimed, reference is drawn to Annexure D1 forming part of computation of income, which for easy reference is enclosed herewith (page nos. 505). Copy of relevant supporting documents are enclosed herewith (page nos. 506 to 530).”
In respect of claim of deduction of bad debt, the assessing officer at para 7.1 of the assessment order stated that MAT is not applicable to the assessee since tax computed under normal provisions was more than the tax computed as per section 115JB of the Act.
During the course of assessment, the assessing officer vide notice u/s 142(1) of the Act dated 09.08.2021 has asked the assessee in respect of claim of any other amount allowable as deduction in Schedule BP along with specific details. In response, the assessee vide submission dated 25.08.2021 has given the detail including amount of Export Import Bank of India A.Y. 2019-20 bad debt written off during the year u/s 36(1)(vii) (exceeding the provisions made and allowed u/s 36(1)(viia) of the Act) to the amount of Rs. 19,04,43,73,175/- and also given a detailed note on the claim of bad debt. The relevant extract of the note explaining the claim of bad debt given by the assessee in its submission before the AO is reproduced as under:
“a. the assessee has written off bad debts of Rs. 19,12,96,10,120/- as irrecoverable in its profit and loss account. b. Section 36(1)(vi) of the Act provides for deduction of the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of an assessee for the previous year; however, in case of an assessee to which clause (viia) applies the amount of deduction has to be restricted to that part of debt or part thereof written as irrecoverable which exceeds the credit balance in the provision for bad and doubtful debts account made and allowed under clause (viia) of section 36(1) of the Act. c. For the assessment year under reference i.e. A.Y. 2019-20, opening balance in the provision for bad and doubtful debts in terms of section 36(1)(viia) is Rs. Nil but has claimed Rs. 8,52,36,945/-, being 5% of total income as admissible deduction 36(1)(viia) for the year under reference. Accordingly, bad debts written off as irrecoverable is allowable only to the extent it exceeds the amount of Rs.8,52,36,945/-. The assessee has written off bad debts of Rs.19,12,96,10,120/- as irrecoverable in its accounts. As the write off of bad debts as irrecoverable has exceeded the credit balance of provision made for doubtful debts, the excess amount of Rs.19,04,43,73,175/- (Rs. 19,12,96,10,120/- less Rs. 8,52,36,945/-) is claimed under section 36(1)(vii) of the Act. Enclosed statement giving details of bad debts written off as irrecoverable during the year and the amount claimed as an admissible deduction under section 36(1)(vii) of the Act (page nos. 536). The said position is tabulated hereunder:
Opening balance in provision for bad and - doubtful debts under section 36(1)(viia) Provision claimed as admissible deduction 8,52,36,945 under section 36(1)(viia) of the Act for the year under reference Export Import Bank of India A.Y. 2019-20 Bad debts written off as irrecoverable in the 19,12,96,10,120 accounts Excess of bad debts written off as 19,04,43,73,175 irrecoverable to the balance in credit balance in the account of provision for bad and doubtful debts under section 36(1)(viia) admissible under section 36(1)(vii)
Further, the assessee has also filed party-wise break-up of the details of bad debt written off to P & L A/c for the year ended 31.03.2019 as per page no. 38 of the paper book wherein break-up of bad debt claimed in respect of 18 different parties were incorporated.
After perusal of the aforesaid submission and material placed on the record demonstrate that during the course of assessment proceedings, the assessing officer has made detailed verification/examination on the issue of claim of DIT relief and claim of deduction of bad debt in computation of MAT and also assessee has withdrawn its claim of deduction of health and education cess by filing Form No. 69 before the AO on 27.03.2023.
Looking to the above facts and findings, we direct the assessing officer to withdraw the claim of deduction of health and education cess on the basis of Form No. 69 already filed by the assessee much before the order passed u/s 263 of the Act by the ld. PCIT. In respect of other two issues of claim of DIT relief and bad debt as discussed supra in this order, we consider that it is evident from the copies of material placed in the record that assessing officer has made specific queries on both the issues and in response the assessee had made detailed submission as discussed above in this order. Therefore, we consider that the order passed by the ld. PCIT u/s 263 is not sustainable in
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 23.09.2024 Sd/- Sd/- (ANIKESH BANERJEE) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai: 23.09.2024 Biswajit, Sr. P.S.