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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO, AM & SHRI RAVISH SOOD, JM
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income-tax–23, Mumbai (for short ‘Pr. CIT), u/s 263 of the Income-tax act, 1961 (for short ‘Act’); dated 31.03.2016, therein setting aside the assessment framed by the A.O u/s 143(3) of the ‘Act’, with a (A.Y. 2011-12) M/s. Maytas Investment Trust direction to recompute the disallowance u/s 14A. The assessee assailing the order of the CIT had raised the following grounds of appeal before us.
1. On the facts & circumstances of the case the appellant prays that the order passed by the Learned Pr. Commr. Of Income Tax is bad in law and is contrary to the conditions stipulated u/s 263 of Income Tax Act, 1961.
2. On the facts & circumstances of the case the Learned Pr. Commr. Of Income Tax has not issued any notice u/s 263 of Income Tax Act, 1961 to establish as to how the order passed by the Learned Assessing Officer is erroneous and prejudicial to the interest of the revenue. In the absence of issue of notice, identifying the specific issue based on which the Learned Pr. Commr. Of Income Tax came to conclusion that the order passed by the Learned Assessing Officer is erroneous and prejudicial to the interest of revenue, the appellant prays that the order passed by the Learned Pr. Commr. Of Income Tax is bad in law and may be set aside.
3. On the facts & circumstances of the case the appellant prays that the order passed u/s 263 of Income Tax Act, 1961, may be cancelled.
Without prejudice to legal grounds 1 to 3
4. On the facts & circumstances of the case the appellant prays that on facts the order passed by the Learned Assessing Officer is not erroneous and prejudicial to the interest of the revenue. On correct application of law, the disallowance u/s 14A made by the Learned Assessing Officer at Rs. 2,73,94,497/- is itself excessive and is required to be reduced.
(A.Y. 2011-12) M/s. Maytas Investment Trust 5. On the facts & circumstances of the case the appellant prays that the order passed by the Learned Assessing Officer wherein he has disallowed Rs. 2,73,94,497/- cannot be considered as erroneous and prejudicial to the interest of revenue.
6. On the facts & circumstances of the case, even on merits the appellant prays that the order passed u/s 263 may be set aside.
7. The appellant craves the permission to add, alter or amend the grounds of appeal at the time of hearing.
The brief facts of the case are that the assessee which is an ‘Investment trust’ had filed its return of income for A.Y. 2011-12 as on 30.09.2011, declaring loss of Rs. 7,05,16,255/-, which as per the record was followed by a revised return of income as on 02.01.2013, declaring the same loss of Rs. 7,05,16,255/-. The case of the assessee was taken up for scrutiny proceedings and the A.O after verifications accepted the returned loss of Rs. 7,05,16,255/-, vide his order passed u/s 143(3), dated. 20.02.2014.
The Pr. CIT, vide a letter dated. 23.03.2016, purporting to exercise his revisionary jurisdiction in the case of the assessee for A.Y. 2011-12, called upon the assessee to put up an appearance before him as on 28.03.2016. That on the basis of the aforesaid letter dated. 23.03.2016(supra), the Ld. Authorized representative for the assessee (for short ‘A.R’) appeared before the Pr. CIT on the stipulated date. That as stands gathered from the body of the order passed u/s 263,
(A.Y. 2011-12) M/s. Maytas Investment Trust which is assailed before us, the Pr. CIT held that the assessee which as per its balance sheet for the year under consideration had made investment in Shares/debentures and Mutual funds to the tune of Rs. 477,77,79,752/-, and was in receipt of exempt income in the form of dividends aggregating to Rs. 2,75,05,752/-, had in its return of income, on its own worked out the disallowance u/s 14A of the ‘Act’ at Rs. 2,73,94,497/-. That in the backdrop of the aforesaid facts, the Pr. CIT by referring to the working sheet given by the assessee as Annexure ‘B’ of the audit report in ‘Form 3CD’ in respect of disallowance u/s 14A of the ‘Act’, therein observed that though the assessee had considered Interest on ‘Pass through Certificates’ (for short ‘PTC’) of Rs. 14,09,79,194/- and Interest on delayed case payments of Rs.41,22,740 for working out the disallowance u/s 14A, but had failed to consider the premium on PTC of Rs. 5,85,42,421/-, which as per the CIT was also in the nature of interest, and had been claimed by the assessee as an expense in its ‘Income & Expenditure account’ for the year under consideration. The Pr. CIT referring to the scope and gamut of the term ‘Interest’ as defined in Sec. 2(28A) of the ‘Act’, and reads as under: -
“Interest means interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit claim or other similar right or obligation) and includes any service fees or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised.”
(A.Y. 2011-12) M/s. Maytas Investment Trust , thus concluded that as the premium on PTC of Rs. 5,85,42,421/- was not considered by the assessee for working out the disallowance u/s 14A in its return of income, and the said erroneous computation of the disallowance u/s 14A had been accepted by the A.O without proper verification while framing the assessment u/s 143(3), therefore the assessment framed by the A.O was rendered as erroneous in so far as it was prejudicial to the interest of the revenue. The CIT thus on the basis of his aforesaid view resorted to revisional proceedings u/s 263, and set aside the assessment order passed by the A.O u/s 143(3), dated. 20.02.2014, with a direction to recompute the disallowance u/s 14A r.w Rule 8D.
That the Ld. Authorized representative for the assessee (for short ‘A.R’) , at the very outset of the hearing of the appeal before us had challenged the setting aside of the assessment order by the Pr. CIT in exercise of the revisional jurisdiction u/s 263 of the ‘Act’. It was submitted by the Ld. A.R that the Pr. CIT without putting the assesse to notice by way of a ‘Show cause’ notice, as regards the issue on the basis of which the assessment framed by the A.O was proposed to be revised by him, had thus acted not only in absolute transgression of the scope of his jurisdiction as had clearly been spelt out in the body of the said statutory provision, but rather in blatant violation of the basic ‘Principles of Natural Justice’,had traversed beyond the scope of his jurisdiction and had most arbitrarily passed the order of revision u/s 263. It was vehemently averred by the Ld. A.R
(A.Y. 2011-12) M/s. Maytas Investment Trust that as per the mandate of law, Sec. 263 contemplates a statutory obligation on the part of the Pr.CIT/CIT of giving an opportunity of being heard to the assessee, pursuant whereto a statutory duty is cast upon the revisional authority to put the assessee to notice as regards the ground on the basis of which the order passed by the A.O is proposed to be revised . It was submitted by the Ld. A.R that the Pr. CIT in the present case had absolutely failed to discharge the statutory obligation of affording an opportunity of being heard to the assessee, and instead of confronting the assessee by way of a clearly worded ‘Show cause’ notice as regards the ground on the basis of which the assessment order passed by the A.O was sought to be revised, had merely by way of an idle formality sent a letter to the assessee to put up an appearance before him on 28.03.2016, in context of a revision u/s 263 for the year under consideration. It was thus submitted by the Ld. A.R that the Pr. CIT dispensing with the statutory obligation of affording an opportunity of being heard to the assessee in the true letter and spirit, had thus most arbitrarily proceeded with and passed an order u/s 263 and set aside the assessment framed by the A.O. The Ld. A.R in support of his contention that now when the basis on which the assessment had had been revised by the CIT did not form part of the ‘Show cause’ notice so issued to the assessee, therefore the CIT had glaringly exceeded his jurisdiction, as a result whereof the order passed u/s 263 cannot be sustained, relied on the judgment of the Hon’ble High Court of Delhi in the case of : CIT Vs. Contimeters Electricals (P) Ltd. (2009) 317
(A.Y. 2011-12) M/s. Maytas Investment Trust ITR 249 (Delhi). That on the other hand, the Ld. D.R though supported the order of the CIT and objected to the contentions of the Ld. A.R, however on a specific query by the bench as to whether any other show cause notice/letter, other then the letter dated. 23.03.2016 was ever issued by the Pr. CIT-23 to the assessee, had very fairly conceded that only the letter dated. 23.03.2016 was issued to the assessee.
We have heard both the parties, perused the material on record and have given a thoughtful consideration to the issue before us. We are of the considered view that the validity of the very assumption and exercise of the jurisdiction by the Pr. CIT u/s 263 of the ‘Act’ in the absence of a valid show cause notice to the assessee, as assailed before us by the Ld. A.R, has to be gathered on the basis of the letter dated. 23.03.2016 (supra) issued by the CIT to the assessee, which as conceded by the Ld. D.R was the only letter/show cause notice issued by the Pr. CIT to the assessee. That for the sake of clarity, the contents of the letter dated. 23.03.2016 (supra), which is placed at Page 1 of the ‘Paper book’ filed by the assessee before us (for short ‘APB’), and will have a strong bearing on adjudication of the issue under consideration, is reproduced as under:-
“ No. Pr. CIT-23/263/MAYTAS/2015-16/877 Date: 23-03-2016
(A.Y. 2011-12) M/s. Maytas Investment Trust C/o. IL&FS Trust Company Ltd., IL&FS Financial Centre Plot C-22, G Block, Bandra Kurla Complex, Mumbai- 400051 Sir/Madam, SUB: Revision u/s 263 of the Income Tax Act 1961, in the case of Maytas Investment Trust A.Y.: 2011-12- Reg. Kindly refer to the above. In this connection you are requested to attend the office of undersigned on 28/03/2016 at 4:30 p.m. at above mentioned address.
(D.P. HAOIKP) Pr. Commissioner of Income Tax-28 Mumbai”
We are of the considered view that from a bare perusal of the contents of the aforesaid letter, which merely calls upon the assessee to put up an appearance before the Pr. CIT on a stipulated date, as regards revision of its case u/s 263, is conspicuously found to be witnessed by absence of even a whisper of the issue in context of which the revisional proceedings are proposed to be carried out, or so referred to in the aforesaid letter by the Pr. CIT. We would not hesitate to observe, that the letter dated 23.03.2016 (supra) can safely and rather inescapably be held to have failed the bare minimum requirement for even being characterized and safely held as a ‘Show cause’ notice to the assessee. We find that though the Pr. CIT in the body of his order passed u/s 263, by referring to the letter dated. 23.03.2016 has claimed that an opportunity of being heard was given to the assessee, but then after perusing the contents of the said letter, we are unable to (A.Y. 2011-12) M/s. Maytas Investment Trust find ourselves as being in agreement with the said claim of the Pr. CIT. We are of the considered view that the Pr. CIT had failed to appreciate that affording of an opportunity to the assessee, as contemplated u/s 263 of the ‘Act’, cannot be construed as an idle formality and therein be dispensed with in a mechanical manner or as a paper formality, for the very reason by exercising revisional jurisdiction, a concluded assessment is sought to be disturbed by the Pr.CIT/CIT, therefore the assessee whose interests are to be adversely effected, is statutorily required to be put to notice of the proposed action, alongwith the basis and the findings of the A.O, which to the view of the revisional authority are found to be erroneous in so far they are prejudicial to the interest of the revenue, and thus are sought to be revised, alongwith affording of reasonably sufficient time to the assessee to substantiate before the revisional authority, that the order sought to be revised is not erroneous or prejudicial to the interest of the revenue. That in the absence of a sufficient opportunity to the assessee, or not putting him to notice as regards the reasons on the basis of which a concluded order/assessment is proposed to be revised by the Pr. CIT/CIT , will seriously jeopardize the interests of the assessee, as the latter would throughout remain in the realm of guess work as to why the revisional proceedings as regards the concluded assessment are being adverted to, and would be in no position to defend his case before the revisional authority. We are of the considered view, that not intimating on the basis of a clearly worded ‘Show cause’ notice to the assessee, the grounds or the (A.Y. 2011-12) M/s. Maytas Investment Trust reasons on the basis of which the revisional authority proposes to revise the order passed by the A.O, alongwith affording of reasonable time to the assessee to put forth its case before the revisional authority that the order of the A.O is not erroneous or prejudicial to the interests of the revenue, would render the very purpose of providing an opportunity to the assessee, as contemplated in the body of Sec. 263 of the ‘Act’, as absolutely redundant and otiose, and would defeat the purposive intent behind such legislation. That still further, in the absence of affording of an opportunity to the assessee, the presence of which fundamental requirement of the ‘Principles of Natural justice’ is specifically found as an in built safeguard in the mandate of Sec. 263 of the ‘Act’, relevant extract of which reads as under: -
“ 263 (1). The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
, thus leaves no scope of doubt that affording of an opportunity to the assessee and specifically putting him to notice as regards the issues on the basis of which the (A.Y. 2011-12) M/s. Maytas Investment Trust order of the A.O is proposed to be revised by the Pr. CIT/CIT, has to be strictly construed without any choice or reservation, as the same is a must for valid assumption of jurisdiction on the part of the revisional authority, and indispensably have to be clearly spelt out by the revisional authority in the ‘Show cause’ notice so issued to the assessee, in order to facilitate the latter to defend his case during the course of hearing of the matter before the revisional authority. The aforesaid view of ours is fortified by the judgment of the Hon’ble High Court of Delhi relied upon by the assessee before us, in the case of :
CIT Vs. Contimeters Electricals (P) Ltd. (2009) 317 ITR 249 (Delhi)
, wherein the Hon’ble High Court held :
“10. The Tribunal considered the rival contentions and referred to the Supreme Court’s decision in the case of : Commissioner of Customs v. Toyo Engg. India Ltd. [2006] 7 SCC 592 wherein the Supreme Court noted that the department cannot travel beyond the show-cause notice. The Tribunal was of the view that the ground that the assessee had not fulfilled the conditions laid down under section 80-IA did not form part of the show- cause notice. The Tribunal accepted the argument of the assessee that the Commissioner of Income-tax did not even call for any explanation on this issue and, therefore, the assessee did not have any opportunity to meet this ground. The Tribunal was of the view that it would be against the principle of natural justice that a person who has not been confronted with any ground be saddled with the liability thereof. Consequently the Tribunal held
(A.Y. 2011-12) M/s. Maytas Investment Trust that as the said issue did not form part of the show-cause notice and the assessee was not even confronted with it, even before the CIT, it cannot form the basis for revision of the assessment order under section 263.
On this aspect of the matter also, we are of satisfied with the findings and the approach taken by the Income-tax appellate Tribunal. No substantial question of law arises for our consideration.”
Thus in light of our aforesaid observations, which are fortified by the aforesaid judicial pronouncement, in the backdrop of the conceded fact on the part of the Ld. D.R that except for the letter dated. 23.03.2016, no other letter/show cause notice was ever issued by the Pr. CIT to the assessee, and as observed by us hereinabove, the basis/ground on which the assessment order passed by the A.O u/s 143(3) had been revised, did never form part of the aforesaid letter dated. 23.03.2016, we are thus of the considered view that the order passed by the Pr. CIT u/s 263 of the ‘Act’, in the absence of the same forming part of the ‘Show cause’ notice (in the present case ‘letter’ dated. 23.03.2016), cannot be sustained in the eyes of law, and the same is therefore cancelled. The ‘Ground of appeal No. 1 to 3’are thus allowed in light of our aforesaid observations.
That as the order passed by the Pr. CIT had been cancelled by us in light of our aforesaid observations, therefore the ‘Grounds of appeal No. 4 to 7’ so raised by the assessee, wherein the order of the Pr. CIT has been assailed by the assessee on merits, we are of the considered view that in light of the very fact that the order
(A.Y. 2011-12) M/s. Maytas Investment Trust passed by the Pr. CIT u/s 263 ceases to exist, would therefore not require any adjudication at this stage, and the same are thus not adverted to and are left open.
The appeal of the assessee is thus allowed in light of our aforesaid observations.
Order pronounced in the open court on 07/12/2016