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Facts
The assessee, a trader in butter and ghee, filed a return for AY 2013-14. The case was selected for scrutiny, and an assessment order was passed. Subsequently, the case was reopened under Section 147, and a disallowance of 30% of transport and outward transport charges was made under Section 40(a)(ia). The PCIT initiated revision proceedings under Section 263.
Held
The Tribunal held that the PCIT's revision proceedings under Section 263 were not exercisable because the issue of disallowance under Section 40(a)(ia) was already pending before the CIT(A)-NFAPC. Citing the High Court judgment in Renuka Philip Vs ITO, the Tribunal found that when an appeal is pending, the exercise of jurisdiction under Section 263 is barred. Therefore, the impugned order of the PCIT was set aside.
Key Issues
Whether the PCIT can invoke Section 263 when the same issue is pending before the CIT(A), and if the revision proceedings are valid in such circumstances.
Sections Cited
Section 147, Section 144B, Section 40(a)(ia), Section 263, Section 194C, Section 251, Section 54, Section 54F
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL & HON’BLE SHRI MANU KUMAR GIRI
आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)
This appeal by the assessee is arising out of the order of the Principal Commissioner of Income Tax, Madurai-1(‘PCIT’ in short) in order No.ITBA/REV/F/REV5/2023-24/1063341366 (1),dated 25.03.2024 for assessment year 2013-2014.
The assessee has raised ground Nos.1-10 in this appeal. However, if the assessee succeeds on ground No.9 which is a preliminary issue, then adjudication on other grounds would be academic exercise.
Ground No.9 raised by the assessee is as under: ‘’The learned Respondent erred in revising the order of the National Faceless Assessment Centre (‘NFASC’ in short) passed u/s 147 r.w. 144B of the Act by invoking the provisions of section 263 of the Act when infact an appeal was pending before the National Faceless Appeal Centre, New Delhi against the order which was revised by the learned Respondent involving the same subject matter of disallowance under section 40(a)(ia) of the Act and therefore, in violation of clause (c) of Explanation 1 to section 263 of the Act’’.
Brief facts of the case are that the assessee is a trader in Butter and Ghee and filed his return of income for the AY 2013-14 on 18.09.2013 declaring total income of Rs.9,60,840/- and agricultural income of Rs.79,000/-. The case was selected for complete scrutinyand scrutiny assessment order was passed by faceless assessing officer (‘FAO’ in short) u/s 143(3) on 25.01.2016 determining the total income at Rs.10,10,840/-. Late on, as per information available during the FY 2012- 13 relevant to AY 2013-14 the assessee had made payment of Rs.65,09,478/- towards transport charges and a payment of Rs.18,30,325/- towards outward transport charges. The assessee had not deducted TDS while making the above payments. Accordingly, case of the assessee was reopened and notice u/s 148 of the Act was issued on 31.03.2021. In compliance to notice u/s 148 of the Act, assessee submitted that return filed on 18.09.2013 may be treated as return filed in response to notice u/s 148. The assessment was framed vide order dated 24.03.2022 u/s 147 r.w. section 144B of the Act, disallowing 30% of payment of Rs.65,09,478/- made towards transport charges and Rs.18,30,325/- towards outward transport charges which is totaling Rs.25,01,941/- u/s 40a(ia) of the Act and added back to the income of the assessee.
Aggrieved, assessee preferred an appeal before the CIT(A)-NFAPC, New Delhi filed on 22.04.2022 vide e-Filing Acknowledgement Number 593842080220422 and wherein taken various grounds of appeal
including a specific Ground Nos.17-20 which are as under:- ‘’17. The Learned NFASC erred in making a disallowance of 30% of freight charges incurred by the appellant under section 40(a)(ia) of the Act to the tune of Rs.25,01,941.
18. The Learned NFASC erred in disallowing 30% of freight charges incurred by the appellant for the reason that no tax was deducted at source in respect of the payments made by it when infact, the TDS provisions under Chapter XVII-B are not applicable in respect of those payments.
19. The Learned NFASC erred in disallowing 30% of freight charges incurred by the appellant without exactly stating as to which provisions under XVII-B is applicable so as to fasten a liability on the appellant to deduct tax at source in respect of such freight charges.
20. The Learned NFASC erred in disallowing 30% of freight charges incurred by the appellant when infact, even the provisions of section 194C is not applicable to the instant case under consideration as the conditions prescribed for applicability of section 194C are not satisfied’’.
Proceedings u/s 263 of the Act:
In the meanwhile, pending adjudication of the appeal before the CIT(A)- NFAPC, New Delhi filed on 22.04.2022 vide e-Filing Acknowledgement Number 593842080220422 against the assessment order dated 24.03.2022 u/s 147 r.w. section 144B of the Act, a notice u/s 263 dated 02.02.2024 has beenissued by the PCIT, 1, Madurai. In the said notice dated 02.02.2024 u/s 263 of the Act, the ld.
PCIT has raised the same issue of disallowance of payment of Rs.65,09,478/- made towards transport charges and Rs.18,30,325/- towards outward transport charges u/s 40a(ia) of the Act which was disallowed and added back to the income of assessee by assessment order dated 24.03.2022 u/s 147 r.w. section 144B of the Act.
During the course of revision proceedings u/s 263, the assessee raised various grounds challenging the notice u/s 263 dated 02.02.2024. In respect of pending appeal before the CIT(A)-NFAPC, New Delhi, the assessee has submitted as under: ‘’Moreover, the AR has submitted that the issue of disallowance under section 40(a)(ia) 40(a)(ia) of the Act is a subject matter of appeal before the Hon'ble Faceless Appellate authority and therefore, as the issue is subject matter of consideration before the authority, clause (c) of Explanation 1 to section 263 prohibits the revision of the order on an issue which is a subject matter of appeal and under consideration before the first appellate authority and, even for this reason, the order of the assessing officer cannot be revised. If at all the benefit of the reduced rate of disallowance of 30% is to be withdrawn by disallowing the entire expenses, it is well within the powers of enhancement of the National Faceless Appeal Centre to disallow the same. Therefore, a parallel proceeding on the very same issue is not recognized in law, especially when the same is still within the powers of enhancement of the National Faceless Appeal Centre under section 251 of the Act and also considering that there is a specific bar on issues which is made a subject matter of appeal under clause (c) to Explanation 1 under section 263 of the Act. Therefore, even for this reason, the instant proceeding is invalid and ought to be dropped’’.
However, the ld. PCIT rejected the submissions of the assessee by holding as under: ‘’The contention of the AR is not acceptable for the reasons that in the appeal the assessee has contested that he is not liable to deduct at source and hence disallowance u/s 40(a)(ia) does not warrant in his case. However, in the present proceedings the issue involved is for the remaining 70% disallowance u/s 40(a)(ia) for the Asst. Year 2013-14 which is in addition to the earlier disallowance of 30%
u/s 40 (a)(ia). Hence, the issue on which the assessee has filed appeal before the CIT(A) is different from the issue involved in the present revisional proceedings. Moreover, the CIT(A) has also not yet decided the appeal. Therefore, the objection raised by the AR on this ground is not acceptable’’. Aggrieved, assessee is in appeal before us.
The ld. Counsel for the assessee argued that the ld. PCIT is erred in revising the order of the National Faceless Assessment Centre (‘NFASC’ in short) passed u/s 147 r.w. section 144B of the Act by invoking the provisions of section 263 of the Act when in fact an appeal was pending before the National Faceless Appeal Centre, New Delhi against the order which was revised by the ld. PCIT involving the same subject matter of disallowance under section 40(a)(ia) of the Act and therefore, in violation of clause (c) of Explanation 1 to section 263 of the Act.The ld. Counsel also referred case law citations which are as under:
Sl.No Particulars Page No. 1 10-15 Kathiravan Ananthalakshmi vs ACIT: 2022 (8) TMI 1307 (Che ITAT) 2 Sainulaptheen Katheeja Umma vs ITO: 2023 (2) 16-21 TMI 700 (Che ITAT) 3 Prabhu Kanimozhi vs PCIT: 2023 (5) TMI 412 (Che 22-26 ITAT) 4 Golden VATS Prvt Ltd vs. ACIT: 2024 (1) TMI 550 27-32 (Che ITAT) 5 33-38 VG Rajamani Agencies Pvt Ltd vs. PCIT: 2024 (1) TMI 492 (Che ITAT) 6 CIT vs VAM Resorts & Hotels Pvt Ltd: 2019 (8) TMI 39-50 1418 (All HC) 7 ACC Itd vs CIT (LTU): 2020 (7) TMI 369 (Mum 51-59 ITAT)
8 Rajesh Kumar Jalan vs. PCIT: 113 ITR(T) 188 (Kol 60-88 ITAT) 9 RM Tradelink vs PCIT: 2022 (9) TMI 789 (Rajkot 89-94 ITAT)
Per contra, the ld. CIT-DR vehemently opposed the arguments of the assessee and relied upon the findings of the ld. PCIT.
We have heard rival contentions and gone through the facts and circumstances of the case andpaper book containing pages (1-120)& case laws paper book containing pages (1-255). Before us, the ld. Counsel for the assessee drew our attention to the judgment of the Hon’ble jurisdictional High Court in the case of Renuka Philip Vs ITO [409 ITR 567 (Mad)] wherein the Hon’ble Court after considering clause (c) of Explanation 1 to section 263 of the Act held as under:
‘’The power under Section 263 of the Act is not exercisable under certain circumstances. In this regard, we refer to Section 263(1) explanation 1(c), which reads as follows: “Revision of orders prejudicial to revenue 263(1)... (a)... (b)... (c)Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the Commissioner under this Sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.”
The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred. The Commissioner in the order dated 14.03.2012 states that the appeal pertains to the claim made by the assessee under Section 54 of the Act and it has got nothing to do with the order passed by the Assessing Officer under Section 54F of the Act. The said finding rendered by the Commissioner is wholly unsustainable, since the assessee went on appeal against the re- assessment order dated 31.12.2009 stating that his claim for deduction under Section 54 http://www.judis.nic.in of the Act should be accepted.
Therefore, in the process of considering as to what relief the assessee is entitled to, the Assessing Officer held that the assessee is entitled to claim deduction under Section 54F of the Act and assigned certain reasons for that. Therefore, the larger issue was pending before the Commissioner of Appeals, and in such circumstances, the Commissioner could not exercise power under Section 263 of the Act on account of the statutory bar. Therefore, on this ground also, the assumption of jurisdiction under Section 263 of the Act was wholly erroneous.
As noticed above, the Assessing Officer while completing the re-assessment proceedings has assigned certain reasons for coming to a conclusion that the assessee is entitled for deduction under Section 54F and not under Section 54 of the Act. This reason assigned by the Assessing Officer has been found by us to show due application of mind. As observed, we cannot expect an Assessing Officer to write a judgment. In such circumstances, the view taken by the Commissioner in his order under Section 263 of the Act has to be termed as a change http://www.judis.nic.in of opinion, or in other words, the Assessing Officer adopted one of the two views possible and in such circumstances, it cannot be stated that the order is prejudicial to the interest of the Revenue as well as erroneous. For the purpose of exercise of jurisdiction under Section 263 of the Act, the twin tests are to be satisfied and even assuming, the re- assessment order is to be held as erroneous, it cannot be stated to be prejudicial to the interest of Revenue as every erroneous order cannot be subject matter of Revision under Section 263 of the Act. Further more, if the order passed by the Commissioner under Section 263 of the Act as confirmed by the Tribunal is allowed to stand, then the very purpose of the remand order against the original re-assessment proceedings would become a fait accompli.
We also find that the judgment of the Hon’ble jurisdictional High Court in the case of Renuka Philip Vs ITO has been followed by the co-ordinate bench in the case of Kathiravan Ananthalakshmi And Kathiravan Srinivasam Vs ACIT [2022 (8) TMI 1307-ITAT Chennai] [ITA Nos.340-341/Chny/2022 dated 03.08.2022].
We also find that by the impugned order, the ld. PCIT raised the same matter of disallowance of payment of Rs.65,09,478/- made towards transport charges and Rs.18,30,325/- towards outward transport charges u/s 40a(ia) of the Act which was subject matter of pending adjudication before the National Faceless Appeal Centre, New Delhi as mentioned supra. Therefore, respectfully following the judgment of the Hon’ble Jurisdictional High Court in the case of Renuka Philip Vs ITO [409 ITR 567 (Mad)], we set aside the impugned order dated 25.03.2024 passed by the ld. PCIT u/s 263 of the Act. Since, we have decided and allowed the appeal on preliminary issue itself hence other grounds become infructuous.
In result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 23rd day of October, 2024 at Chennai.