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Income Tax Appellate Tribunal, JAIPUR BENCHES, “A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI,
whether the order of Assessing Officer is erroneous and prejudicial to the interest of the revenue. As regards the 2nd issue, of charging of tax on the dividend 9.2 income ld. AR of the assessee submitted when there is specific provision u/s 115BBD, the ld. PCIT cannot direct the ld. AO to charge the said income which is covered by the specific provisions under the head business Income. The assessee offers dividend income as per provision of section 115BBD of the Act regularly every year and that has been accepted in the past years too. Thus, there is no reason as to suggest that on the issue to hold another view.
9.3 As regards issue of tax deduction of education cess claimed by the same was claimed based on the provision of the Act prevailing at the time but the assessee on that amount of Rs. 5,92,10,074/- paid the required tax along with the interest and the ld. PCIT was satisfied on that aspect of the matter based on the explanation furnished by the assessee. was prejudicial to the interest of revenue and the ld. PCIT failed to prove that order of the assessing officer sought to be revised is erroneous and is prejudicial to the interests of the revenue. If one of them is absent the order of the assessing officer cannot be subjected to the revision as per provision of section 263 of the Act.
The ld. AR of the assessee in support of the merits of the case and judicial precedent relied on the submission filed.
Per contra, the ld. DR relied upon the finding recorded at para 6B and 6C from Page No. 40 to 46 her order. She further stated that the ld. PCIT has considered all the arguments placed on record and thereafter passed reasoned order.
We have considered the submissions advanced by learned counsel for the parties and have also perused the material on record. Ground no. 4, raised in this appeal being general and there is no grievance of the assessee so the same being general in nature does not required any adjudication by us. the PCIT under dispute on the jurisdiction issue. Whereas ground no. 2 & 3 raised by the assessee on the merits of the dispute contesting that even based on the set of the facts placed on record the order passed by ld. AO, does not confer jurisdiction u/s. 263 of the Act. Since all these three grounds inter connected emanates from the order under dispute we considered it to dispose the same together.
Brief facts of the case are that the assessee is a public limited company engaged in manufacture of Urea and Single Super Phosphate (SSP) and marketing of other Agri- inputs such as Di- Ammonium Phosphate (DAP), Muriate of Potash (MOP), NPK Fertilisers, agrochemicals, seeds, micronutrients, etc. For the year under consideration assessee has filed its return of income on 29.03.2019 declaring taxable income of Rs. 593,12,42,630/-. The source of income of the assessee for the year under consideration is income from Business, Income from capital Gain and Income from other source. After filling the return of income by the assessee the case was selected for complete scrutiny assessment under the E-assessment Scheme, 2019. Ld. AO in the assessment order noted that the assessee submitted replies which were examined the assessee, ld. AO concluded that explanation offered by the assessee was satisfactory and no adverse inference was drawn. At last ld. AO noted assessee on 24.02.2021 filed the revised computation of income and offered the GST provision of Rs.
16,30,91,496/- for taxation purpose which was added back to the total income of the assessee. Accordingly, against the returned of income of Rs. 5,93,12,42,630/- assessed income was determined at Rs. 6,09,43,34,126/- vide order dated 19.04.2021.
After completion of assessment proceedings, ld. PCIT called for the assessment records for examination. That examination of records was as per provision of section 263 of the Act. While doing so ld. PCIT raised three issues in the proceeding initiated against the assessee and to this effect she issued a notice dated 20.09.2023 giving opportunity of being heard as well as requiring the assessee to furnish its submission on the issue. The assessee filed a detailed submission.
On the issue of claim of Education cess, the assessee submitted that they have deposited the requisite tax along with the tax. After considering the reply filed by the assessee, ld. PCIT was satisfied on that issue.
Now we would deal with left out two issues for which the ld.
PCIT invoked the provision of section 263 of the Act. The first one is on the contention that the assessee has reported at ITR column no. 43(i) under the head interest paid outside India or Paid in India to a non resident other than a company or a foreign company for an amount of Rs. 25,56,23,509/-. While the Tax deducted as reported in form no. 3CD assessee reported to have deducted tax for an amount of Rs. 13,92,83,709/-. Thus, ld. PCIT was of the view that the assessee has not deducted TDS on Rs. 11,33,39,800/- [ Rs, 25,56,23,509/- less Rs.13,92,83,709/- ] under the provision of section 195 vis a vis 194A of the Act.
During the proceeding before ld. PCIT assessee filed a detailed reply with supporting evidence. The assessee submitted a detailed breakup for an amount of Rs. 13,92,83,709/- being the amount of TDS made as per provision of section 195 of the Act as reported at clause 34a of the Tax audit report filed by the assessee. The assessee demonstrated that the interest which was paid outside India and was liable to TDS as per provision of section 195 was for an amount of Rs.1,81,97,163/- only out of the total Assessee also explained as to why the TDS on a sum of Rs.
25,56,23,509/- as reported in ITR column no. 43(i) being the interest paid outside India or Paid in India to a non resident other than a company or a foreign company does not match with the figure reported at clause 34a of the tax audit report. As the dispute arise out of the figure of Rs. 25,56,23,509/- reported in the ITR, it would be better to analyses the details of the such payment made by the assessee. Breakup of the figure reported in ITR is as under: showing the names of payee for an amount of Rs. 1,81,97,163/- for which there is not dispute as the TDS as per provision of the Act has already been deducted. Now so far as the balance amount is concerned as is evident from the above chart that Rs. 23,09,26,264 being the interest paid to Indian Banking companies for which provision of section 194A(3)(iii) would apply. So far as the foreign bank payment of Rs. 52,11,831/- paid by the assessee, the same has been paid to KFW (Germany) and HSBC Bank (Mauritius) Ltd., As regards the payment made to KFW (Germany) same is covered by the DTAA agreement between India and Germany interest paid to KFW Bank was not taxable in India and hence no TDS was required to be deducted. As regards the interest paid to HSBC Bank (Maurituius) Ltd., a press release dated 10.05.2016 states that interest income of Mauritian resident banks in respect of debts claims existing on or before 31st March 2017 shall be exempt from tax in India and the payment made for the debt taken before 31.03.2017. As regards 4th claim of foreign currency under the head exchange rate, is in accordance with the accounting standards giving effect of exchange rate difference. As that exchange rate difference did not entail any pay out question of assessee demonstrated that the issue of deductibility of interest expenses has been verified by the ld. AO and the assessee filed the details at point no. 9 of the submission dated 02.03.2021 filed with the ld. AO. Thus, the issue raised by ld. PCIT has already been verified by the ld. AO and the PCIT cannot in the proceeding u/s. 263 direct the way the enquiry should have been done by the ld. AO. We note that based on the details placed on record the ld. AO taken a plausible view which even the after the details placed on record revenue failed to established that the view taken by the ld. AO is erroneous or prejudicial to the interest of the revenue.
Thus, here we note that the issue first of all verified by the ld. AO, not only that based on the explanation before ld. PCIT neither she hold that the explanation or based on the details placed on record the order is erroneous nor prejudicial to the interest of revenue.
Even the ld. PCIT did not controvert the detailed submission and evidences placed on record. She simply stated that;
“ The reply of the assessee on the issue of non deduction of TDS on interest payment of Rs. 23,09,26,264/- supra is not fully acceptable and requires further examination/verification by the Assessing Officer, moreover, the third party verification, wherever required. Therefore, the AO shall have to take further steps to verify the issue, as per the direction given at para no. 9 below.”
The above finding of the ld. PCIT did not spell out that on the issue as even after giving the detailed explanation by the assessee, whether the order passed by the ld. AO was erroneous or prejudicial to the interest of the revenue or not?. There is no specific finding by the ld. PCIT on the issue. Therefore, we do not see any reasons in the order as to why the provisions of section 263 of the Act are attracted.
As we note that provisions of section 195 provides that any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. In this case the payment is made by the assessee to Foreign branch of Indian Bank. The nature of payment is interest but is not paid to foreign company. Further these banks are also not a company. Therefore, if there recipient term non-resident is defined in section 2(30) which says that non- resident means a person who is not the resident includes a person who is not ordinary resident within the meaning of clause 6 of section 6. The term resident is defined in section 6(4) of the Act which says that every other person is said to be resident in India in any previous year. In every case, except where during that year the control and management of his affairs is situated holly outside India whereas in the case of banking companies effective place and management is controlled in India and not outside India. In this case, as is evident that the case of ld. PCIT is not that control and management of this branches of bank are situated outside India. In fact, these foreign branches are not foreign entity but foreign branch of Indian Bank. Therefore, foreign Branch of this Indian Bank cannot be considered as non-resident. Accordingly provisions of section 195 do not apply to payment made by Indian company to foreign branch of Indian Bank. Hence there is no requirement on deduction of tax at source. Even otherwise these banks are Indian resident and incomes of their branches are taxable in the hands of this Indian Bank in their return of income to be filed in India.
Because of these reason that global income of resident of Indian of income of foreign branch of this resident bank, once again be granted the credit of taxes in the hands of this Indian Bank. Even otherwise deduction of at source, u/s 194A(3) on payment made to an Indian Bank is out of purview of TDS. In view of the provisions of section 194(A)(3)(iii)(f) of the Act under this clause all banks covered under the bank nationalization given the exemption for withholding of tax under section 194A of the Act. In view of this aspect also we do not find that the tax is required to be deducted on the above payment of interest paid to foreign branch of Indian Bank. Thus, here also the order of ld. AO cannot be said to the erroneous so far as prejudicial to the interest of revenue.
Therefore, the twin conditions as prescribed under the Act are missing. Now coming to the provisions of explanation 2 of section 263 of the Act, ld. PCIT should have at least satisfied herself before invoking the provisions, have found so, and hence without bringing the fact that the payment made to such foreign branch of an Indian bank is a separate entity or not and how upon such payment tax is required to be deducted and such satisfaction is required to be made by herself in her order itself. Explanation 2 cannot be used for such void manner that if relief is granted which is otherwise u/s. 263 by the order of the PCIT. Law does not permit to invoke the provisions of section 263 of the Act without proving that order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue.
As regards the issue of charging of dividend income as per section 115BBD Vs. Business income, the brief fact connected to the issue is that the assessee hold 33.33 % shares in the Joint Venture in Morocco namely Indo Maroc Phosphore SA (IMACID) along with two other partners (33.33 % of shareholding of each) i.e. Tata Chemicals Limited (TCL) and OCP, Morocco. For the year under consideration the assessee has accounted income of Rs. 9,82,58,313/- being the amount of dividend received from IMACID.
In support the assessee filed a dividend certificate, annual report, minutes of meeting of share holders and balance sheet. None of the documents were discussed or considering while holding that as to why the dividend income should not be considered as such and be considered as business income. But she contended that the assessee has joint venture in Morocco as share @ 33.33 % it is a trade investment and joint control and business is carried to pool had invested in this JV in form of trade investment, income derived from this investment is to be charged as business income instead of dividend income. Though IMACID paid the dividend to the assessee ld. PCIT is of the view that the said income is to be taxed as Business Income and not as dividend income on special rate.
Ld. PCIT was aware about the fact that the issue was raised by the revenue in A. Y. 2012-13 which was challenged before our High Court of Rajasthan in DBCWP no. 5144/2022 wherein the high court has allowed the appeal of the assessee and was decided on the jurisdiction issue and not on the merits of the disputes. Thus, that aspect of the matter being not decided ld. PCIT hold that ld. AO has under incorrect assumption of facts and incorrect application of law as well as inadequate inquiry hold the order of the ld. AO erroneous and prejudicial to the interest of the revenue.
As we note from the facts of the case available on record that assessee has received the dividend income after deducting the withholding of tax and is supported by the dividend certificate (APB-176). The income is supported by the various records placed on record stating that the income is on account of declaration of dividend declared by the joint venture company where the under the provision of section 115BBD of the Act and thus the income received from the JV was to be treated as dividend income only. The assessee offer this income regularly and the revenue has not challenged that act of the assessee. The contention of the PCIT to treat the dividend income as business profit is against the provision of law and plain reading of section 115BBD read with section 90(2) of the Act the view is against the provision. Moreover while taking that plea the ground taken are also against the law and considering the evidences placed on record the view that the ld.
AO has adopted while considering that income chargeable to tax as per section 115BBD cannot be considered as erroneous view and prejudicial to the interest of the revenue.
Considering that factual aspect now we refer to the provision of section 263 of the Income Tax Act, 1961, which acts as safeguard, acknowledging dynamic nature of tax assessments, providing a mechanism to ensure fairness, accuracy, and protection of the revenue’s legitimate claims. Essentially, it embodies the legislative commitment to a tax administration system that is both effective and just. In essence, Section 263 is a the delicate balance needed between empowering tax authorities and preventing potential errors. Through its existence, the section reflects commitment to maintaining integrity of the tax assessment process, acknowledging the ever-evolving nature of tax laws and the need for a mechanism that can adapt to changes in interpretations and protect the revenue’s interests. Section 263 is not merely a provision for revision but very crucial component of Act ensuring that tax administration system remains robust, fair, and equipped to address the challenges arising in the course of tax assessments. Main objective of Section 263 is to rectify orders that are not only erroneous but also have the potential to adversely affect the revenue’s interests. It provides a mechanism for the Commissioner to ensure correctness of orders passed by subordinate officers. The Commissioner’s role extends beyond mere oversight; they serve as custodians of revenue. When an order is deemed “erroneous” and “prejudicial to the interests of the revenue,” the Commissioner’s revisionary power comes into play.
“Erroneous” signifies a departure from the legal framework, while “prejudicial” pertains to circumstances that could diminish revenue rightfully owed to the government. Thus, the law provides that the jurisdiction under section 263 by the Commissioner. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the revenue. In the following circumstances, the order of the Assessing Officer can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii) Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the Assessing Officer has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the Assessing Officer can be termed as prejudicial to the interest of the revenue. This phrase, i.e., prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. It has to be remembered that every loss of the revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
Based on the discussion so recorded on the issue of fact the bench noted that every inadequacy of the enquiry conducted by an AO as against the no enquiry cannot form a basis for setting aside an assessment order which has been passed by the NeFAC. In the instance case as discussed herein above interest expenses issue has been verified by ld. AO and taken a plausible view. Even the ld. AR of the assessee placed on record relevant material so as to establish that on both the issue the order is not erroneous and that of the matter has not been challenged by the ld. DR so far the as merits of the case. The bench also noted that on two issues even on the ld. PCIT noted that the issue requires the verification by the ld. AO. Thus, when based on the submission and discussion so recorded as is evident that on all of the aspect of the matter the assessment order is not erroneous and prejudicial to the interest of the revenue. In our considered view, the PCIT had to reach a that the assessment order was erroneous by conducting an enquiry before passing an order under Section 263 of the Act. Therefore, the order passed by the ld. PCIT dated 20.03.2024 cannot be sustained in law merely because the original assessment order does not exactly advert to the issue which the ld. PCIT is seeing.
Moreover, we note that both the issue that she has discussed ld. DR did not demonstrate as to the facts as argued by ld. AR that the view on the issue is erroneous or prejudicial to the interest of the revenue. Hence, the PCIT could not have exercised the powers conferred upon her u/s. 263 of the Act only on the reasons that she had a different view or perspective in the matter and the matter requires a fresh verification. The principle of law enunciated by the Supreme Court in Malabar Industrial Co. Ltd. has set up a standard concerning the width and amplitude of power vested for exercising revisionary jurisdiction under Section 263 of the Act.
While exercising power under the said provision, the concerned officer must be satisfied that the twin conditions provided therein stand fulfilled, i.e., the order passed by the AO, which is sought to be revised, is erroneous and is also prejudicial to the interest of the revenue. In other words, if one of the two conditions is not satisfied, One cannot quibble with the principle of law.
Based on the discussion so recorded we are of the considered view that the proceeding-initiated u/s. 263 fails on the twin condition and even the ld. PCIT on the issue noted that the issue need only verification / examination and there is no independent view of the ld. PCIT even on merits of the issue and therefore, the ground no. 1 to 3 raised by the assessee are allowed.
Ergo, we quash the order passed by the PCIT, Udaipur.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 25/10/2024.
Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 25/10/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Chambal Fertilizers and Chemicals Ltd, 1. Kota Chambal Fertilizers and Chemicals Ltd vs. PCIT 2. izR;FkhZ@ The Respondent- PCIT, Savina-Udaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. xkMZ QkbZy@ Guard File {ITA No. 694/JP/2024} 6. vkns'kkuqlkj@ By order,
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