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

आदेश / O R D E R

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

Central India Academy, Dewas vs. PCIT-1, Indore. AY 2018-19

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.

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 Central India Academy, Dewas vs. PCIT-1, Indore. 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.

Central India Academy, Dewas vs. PCIT-1, Indore. 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 Central India Academy, Dewas vs. PCIT-1, Indore. 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 Central India Academy, Dewas vs. PCIT-1, Indore. 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 Central India Academy, Dewas vs. PCIT-1, Indore. 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.

Central India Academy, Dewas vs. PCIT-1, Indore. AY 2018-19

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.

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 Central India Academy, Dewas vs. PCIT-1, Indore. AY 2018-19 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.

Order pronounced in the open court on 14.03.2024