CENTRAL INDIA ACADEMY ,DEWAS vs. THE4 PCIT-1,INDORE, INDORE

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by revision-order dated 27.03.2023 passed by learned Pr. Commissioner of Income-Tax, Indore-1 [“PCIT”] u/s 263 of Income-tax Act, 1961 [“the Act”], which in turn arises out of assessment-order dated 04.03.2021 passed by National e-Assessment Centre, Delhi [“AO”] u/s 143(3) of the Act for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal on the grounds raised in Appeal-Memo (Form No. 36).

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

assessee-society filed its return of income of relevant AY 2018-19 on

31.10.2018 declaring Nil amount of total income which was subjected to

scrutiny-assessment through statutory notices issued u/s 143(2)/142(1).

Finally, the AO completed assessment u/s 143(3) vide order dated

04.03.2021. Subsequently, Ld. PCIT examined the record of assessment-

proceeding and viewed that the assessment-order passed by AO is erroneous

in so far it is prejudicial to the interest of revenue which attracts

revisionary-jurisdiction u/s 263 of the Act. Accordingly, the PCIT issued

show-cause notice dated 21.02.2023 and finally passed revision-order dated

27.03.2023. The assessee is aggrieved by said revision-order and has come

in this appeal before us.

demonstrated that there is one single issue for which the PCIT undertook

revision. The PCIT has noted that the assessee claimed deduction of rent

expenditure of Rs. 80,00,000/- and during the course of scrutiny-

assessment, the assessee filed copies of rent-agreements, details of TDS out

of rent payments, etc. to substantiate the genuineness of rent expenditure.

But the rent-agreements were executed on stamp-papers of Rs. 500/- only

and they were not registered with the Registration Department as per

provisions of section 17 of Registration Act, 1908. The PCIT further noted

that as per provisions of section 33 of Indian Stamps Act, 1899, every public

officer is required to impound any instrument produced before him which is

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

not duly stamped. The PCIT then noted that the AO has, despite such

provisions of Indian Registration Act read with Indian Stamps Act, allowed

the deduction of rent expenditure of Rs. 80,00,000/- to assessee on the

basis of unduly stamped and unregistered documents, which should have

been disallowed. Therefore, the assessment made by AO has resulted in

under-assessment to the extent of Rs. 80,00,000/-. The PCIT also noted that

the AO has completed assessment without making necessary investigation

and enquiries. He further observed that since the section 263 has been

amended and Explanation 2 as reproduced below had been introduced

therein, the assessment-order is deemed to be erroneous-cum-prejudicial to

the interest of revenue if the same had been passed without inquiries or

verification which should have been made:

“Explanation 2 – “For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the Principal Commissioner or Commissioner - (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.” 4. Having explained the background of revision done by PCIT, Ld. AR

strongly contended that the Ld. PCIT is very much wrong in undertaking

revision due to following reasons:

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

(i) The PCIT has made a wrong and baseless observation that the AO has

not made requisite enquiries during assessment-proceeding when the

documents available in assessment-record itself shows that the AO

has made sufficient enquiry on the issue. To show how the AO made

enquiries, Ld. AR drew our attention to Point No. 5 of the statutory

notice dated 05.01.2021 u/s 142(1) issued by AO wherein the AO

specifically raised following query to assessee:

“5. You have made expenses of rent of Rs. 80,00,000/-. Please furnish the details in the following format :-

Name, address Amount of Rent Description of TDS Done Brief utilization & PAN of the paid property taken of property Party to whom on Rent taken on Rent rent is paid

Copies of Rental agreement also be furnished” In response to above notice, Ld. AR demonstrated by carrying us to

Pages 40-53 of Paper-Book, the assessee filed a complete reply on

26.02.2021 wherein, in Point No. 5, the assessee submitted details in

a tabular format containing names of payees, their PANs, addresses,

amount of rent, amount of TDS. Further, the assessee also filed a note

on complete details of properties taken on rent as well as utilisation of

those properties for assessee’s purposes. The assessee also filed copies

of rent-agreements to AO. Ld. AR submitted that the PCIT himself has

accepted in show-cause notice that the assessee filed these details

and rent-agreements to AO. Therefore, on one hand the PCIT himself

accepts that the AO has made enquiries and assessee has filed

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

details/documents but on other hand he wrongly alleges that the AO

has not conducted enquiries.

(ii) Ld. AR next submitted that the exact basis of PCIT for undertaking

revision should not and cannot be that the AO has not made enquiries

even if it is alleged/stated so in the show-cause notice or revision-

order. However, the PCIT has a point that the AO has not complied

with the provisions of section 33 of Indian Stamps Act and allowed

deduction of rent by admitting unregistered/unstamped rent-

agreements. For this, Ld. AR submitted that the Income-tax Act, 1961

is a self-integrated law for computation of ‘total income’ and the ‘total

income’ as per section 2(45) has to be determined ‘in the manner laid

down in this Act’ which means the incomes have to be taxed and

deductions have to be allowed in accordance with the provisions of the

Income-tax Act, 1961. Ld. AR submitted that in assessing incomes or

giving deductions, the income-tax authorities have to go by the

provisions of Income-tax Act, 1961 and any non-compliance of other

law, even if there be, is nothing to do with determination of ‘total

income’. Ld. AR submitted that the assessee is engaged in educational

activities and required a large premise of class-rooms, indoor sports

complex and swimming pools for students, etc. which the assessee did

not own. Therefore, the premise was taken on rent and the complete

description as well as such utilization of properties so taken by

assessee were duly informed to AO vide aforesaid reply-letter dated

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

26.02.2021 in response to query raised by AO. Ld. AR submitted that

the rent expenditure incurred by assessee was allowable as deduction

in terms of section 57(iii) of the Act since the said expenditure was not

in the nature of capital expenditure and it was laid out or expended

wholly and exclusively for the purpose of making or earning income.

Therefore, the assessee satisfied the requirement of section 57(iii). Ld.

AR contended that there is no requirement in section 57(iii) or even in

section 30(a)(i) of Income-tax Act, 1961 to have a registered/duly

stamped agreement for giving deduction of rent. Ld. AR also submitted

that it is not even the stand of PCIT that the rent payment was not

incurred for assessee’s activities or it was bogus or without taking

premise on rent or even any part of rent-payment was excessive,

unreasonable or illegitimate. Therefore, the Ld. PCIT is wrong in

holding that the deduction of rent was disallowable.

(iii) Lastly, Ld. AR submitted that the PCIT can invoke revisionary action

u/s 263 only if the order passed by the AO is ‘erroneous in so far as it

is prejudicial to the interest of revenue’. She submitted that the words

‘prejudicial to the interest of revenue’ are preceded by ‘erroneous’,

therefore unless the order of AO is erroneous, the PCIT cannot

undertake revision. Replying on landmark decision in Malabar

Industrial Co. Vs. CIT (2000) 243 ITR 83 (SC), Ld. AR submitted that

when the AO has adopted one of the courses permissible in law and it

has resulted in loss of revenue or where two views are possible and

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

the AO has taken one view with which the Commissioner does not

agree, the AO’s order cannot be termed as ‘erroneous’. Ld. AR

submitted that in present case, the assessment-order has been passed

by AO, who happens to be National e-assessment Centre, Delhi after

raising queries to assessee and considering replies of assessee

specifically qua the rent expenditure and one of those queries and

reply is with respect to utilization of property for assessee’s activities

and after considering assessee’s reply, the AO has allowed deduction

to assessee. In such a situation, the deduction granted by assessee,

which conforms to the provisions of section 57(iii)/30(a)(i) of the

Income-tax Act, 1961 cannot be said to have resulted in passing any

erroneous order. Ld. AR drew our attention to Para No. 13 and 14 of

assessment-order where the AO has made substantial disallowances

out of so many expenses but not out of rent expenditure. Ld. AR

contended that the AO’s approach itself demonstrates that he did not

make disallowance out of rent expenditure only because he found that

the rent was allowable to assessee in terms of provisions of Income-

tax Act. However, Ld. AR submitted, even if we assume that there

could be two views qua the allowability of deduction, then also the

AO’s order cannot be treated as erroneous as per judgement of

Hon’ble Supreme Court in Malabar Industrial Co. Vs. CIT (2000) 243

ITR 83 (SC). Therefore also, the revision undertaken by PCIT is not

sustainable.

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order passed by Ld. PCIT is not in accordance with the requirement of

section 263 and the same must be quashed.

He submitted that although the Income-tax Act is an integrated law for

computation of total income but the assessee has submitted unregistered/

unstamped rent-agreement. Therefore, how can AO grant deduction? He

submitted that Income-tax Act, 1961 cannot be said to be a ‘water tight’ law

and it has to be read alongwith other laws. He went on submitting that one

of the payees is a Chairman of the assessee-society which also shows that

rent has been paid to a connected person. Lastly, he submitted that the

PCIT has set aside the assessment framed by AO for the limited purpose of

re-examining the issue and the assessee has full scope to make submission

before AO during consequential proceedings, hence there should be any

grievance to assessee flowing from revision-order.

orders of lower authorities as also the documents placed by assessee in a

Paper-Book/Written-Submissions. After a careful consideration, we find that

during the course of assessment-proceeding, there were specific queries

raised by AO with regard to the issue contemplated by Ld. PCIT and the

assessee too made vehement submissions. To this extent there cannot be

any dispute or rebuttal by revenue, in fact the PCIT has himself accepted

this part in his show-cause notice/revision-order. Clearly, therefore, it is

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Central India Academy, Dewas vs. PCIT-1, Indore. ITA No.162/Ind/2023 – AY 2018-19

discernible that the AO has considered assessee’s submission and thereafter

taken a plausible view. Further, the action of AO in accepting the

submission of assessee does not lack bonafides and cannot be said to be

faulty when the assessment-order has been passed by National e-

assessment Centre, Delhi. Coming to the specific point raised by Ld. PCIT

that the AO has not complied with the provisions of section 33 of Indian

Stamps Act and allowed deduction of rent by admitting the unregistered/

unstamped rent-agreement, we find a substantial weightage in the

submission of Ld. AR that the Income-tax Act, 1961 is a self-integrated law

for computation of ‘total income’ and the ‘total income’ as per section 2(45)

has to be determined ‘in the manner laid down in this Act’. Therefore, the

incomes are to be taxed as well as deductions are also to be allowed in

accordance with the provisions of the Income-tax Act, 1961. We find that in

terms of section 57(iii)/30(a)(i), rent is deductible if the premise is taken on

rent and the utilization of premise is wholly and exclusively for assessee’s

purposes. In the present case, there is no doubt or dispute with regard to

fulfillment of these requirements of section 57(iii)/30(a)(i). Needless to

mention that the assessee is engaged in educational activities and required

a large premise of class-rooms, indoor sports complex and swimming pools,

etc. which was taken on rent and the complete description as well as

utilization of properties was duly informed to AO vide aforesaid reply-letter

dated 26.02.2021 of assessee in response to query raised by AO. It is also

not a stand of PCIT that the rent payment was not incurred for assessee’s

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activities or it was bogus or without taking premise on rent or even any part

of rent-payment was excessive, unreasonable or illegitimate. Therefore, there

cannot be any dispute with regard to the allowability of deduction in terms

of provisions of Income-tax Act, 1961. So far as non-registration or un-

stamping of rent-agreement is concerned, Ld. DR for revenue is not able to

demonstrate any such requirement in any provision of Income-tax Act,

1961. Further, we may also look at from an opposite angle. If there is an

unregistered/unstamped agreement showing income earned by a person, is

the income-tax department going to tax the income reflected therein or not?

Clearly, the answer would be affirmative. Therefore, when the income shown

in unregistered/unstamped agreement is taxed so as to fall within the

meaning of total income u/s 2(45), there should not be any problem in

giving deduction to assessee when the document reveals an expenditure?

Needless to mention that the assessee has deducted TDS out of the rent

paid to payees and the data of TDS is also on record of department. Further,

the PAN data of payees have also been provided by assessee in response to

the queries raised by AO and the same are available in TDS record of

department. Therefore, the genuineness of rent expenditure is clearly

established and the allowability therefore in terms of section 57(iii)/30(a)(i)

is also established as discussed earlier. In any case, we also agree to the last

contention raised by Ld. AR that even if the AO has taken one of the

possible views, the order of AO cannot be said to be erroneous as per

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decision of Hon’ble apex Court in Malabar Industrial Co. Vs. CIT (2000) 243

ITR 83 (SC) and therefor also the revision-order is not sustainable.

original assessment-order passed by AO. The assessee succeeds in this appeal.

Order pronounced in the open court on 14.03.2024

Sd/- sd/- (VIJAY PAL RAO) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore िदनांक /Dated : 14.03.2024 CPU/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPYAssistant Registrar Income Tax Appellate Tribunal Indore Bench, Indore

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