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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order dated 23.03.2023, passed by the Learned Principal Commissioner of Income Tax, Surat-1 [in short ‘the Ld. PCIT’], under section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’].
The grounds of appeal raised by the assessee are as follows: “1. In view of the facts and circumstances of the case, the Ld. PCIT, Surat-1 erred in invoking provisions of Section 263 and thereby passing order u/s 263 giving directions to the assessing officer and hence your petitioner PRAYS that the order passed by Ld. PCIT, Surat-1 on 23rd March, 2023 be declared illegal, ultra-wires and be quashed.”
Brief facts qua the issue are that assessee before us is a Co- operative Bank and filed its Return of Income for assessment year (A.Y.) 2018-19, on 30.09.2018, declaring total income at
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. Rs.37,36,32,000/-. The assessee`s case was selected for complete scrutiny under CASS for various reasons alongwith the reason to verify the Refund of claim. The assessment order u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act was framed by assessing officer, on 17.03.2021, by accepting the returned income.
Later on, Learned Principal Commissioner of Income Tax, Surat-1 [in short ‘the Ld. PCIT’], exercised his jurisdiction under section 263 of the Income Tax Act, 1961. On verification of Audited Balance Sheet and Tax Audit Report of the assessee, it was observed by ld PCIT that the assessee has purchased fixed asset and claimed depreciation and additional depreciation during the year under consideration as under:
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. During the course of assessment proceedings, neither the assessing officer has inquired nor the assessee has furnished any explanation in respect of depreciation claimed on the new assets purchased by the assessee, which is mandatory in view of the Instruction No.9/2007 dated 11.09.2007 of CBDT, New Delhi.
Further on verification of Audited Profit and Loss Account and details of other expenditure, it was noticed by ld PCIT that the assessee has claimed Rs.64,68,703/- as ‘GST input credit lapse’ for the year under consideration. On perusal of computation of total income submitted during the course of assessment proceedings, it was noticed by ld PCIT that the assessee has not added back the amount debited in Profit &Loss Account as ‘GST input credit lapse’. It was further noticed that neither the assessing officer has asked the question regarding GST input credit lapse debited in Profit &Loss Account nor the assessee has made any submission regarding the amount claimed as expense for the year under consideration. Since, the GST input credit lapse is not an expense of the assessee for the year under consideration, therefore, the amount of Rs.64,68,703/- claimed as deduction is not allowable u/s 37 of the IT Act. The assessing officer was required to disallow Rs.64,68,703/- claimed by the assessee as 'GST input credit lapse'.
Further on perusal of Tax Audit Report, column No. 26(i)(B)(b) 'Not paid on or before the aforesaid date u/s 43B(f)’, it was noticed by ld PCIT that the Auditor has reported that the ‘assessee has not paid Rs.2,35,31,575/- as leave retirement benefits during the year under consideration’. On verification of Income Tax Return, in the remark ‘Any amount debited to profit and loss account of the previous year but
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. disallowable under section 43B’, it was observed by ld PCIT that the assessee has disallowed only the amount of Rs.1,19,25,500/- as any sum payable towards leave encashment instead of Rs.2,35,31,575/-, as reported by the Auditor in 3CD report. In this regard, neither the assessing officer has asked question regarding amount disallowed u/s 43B of the Act nor the assessee has submitted any explanation regarding the same for the year under consideration. Hence, the assessing officer ought to have added the amount of Rs.1,16,06,075/- (2,35,31,575 – 1,19,25,500) to the total income of the assessee for the year under consideration, which he failed to do so.
Therefore, ld PCIT has issued a show cause notices to the assessee vide show cause notice bearing DIN No. ITBA/COMF/17/2022-23/10499110059(l) dated 20.02.2023 and ITBA/COMF/17/2022-23/1050210021(1) dated 28.02.2023 and were duly served upon the assessee through e-proceedings.
In response to above show-cause notice, the assessee has furnished its reply dated 01.03.2023, the relevant portion of which is reproduced as under: “1. In para 3 of your above said notice Your honour had proposed to set aside the assessment order u/s 143 (3) of the Income Tax Act, 1961 on the ground of non-verification of depreciation and additional depreciation by the Assessing Officer at the time of assessment proceeding which is mandatory in view of the Instruction No.9/2007 dated 11.09.2007 of CBDT, New Delhi. Your honour, please note that the assessee bank has not claimed additional depreciation on the new asset purchased during the year under consideration. The copy of 3CD report, computation of income was already on records at the time of the assessment proceedings. Your honour further note that during the assessment proceeding the assessee bank has already given explanation regarding question asked by the learned A. O. for the profit on sale of assets on depreciable asset.
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. Assessee Bank is a co-operative bank and is engaged in the business of banking and therefore, the asset held by the assessee are for its business purpose and depreciation is also claimed on same. Therefore, the learned A.O. has the knowledge on the basis of information available at the time of assessment proceeding for the depreciation claimed by the assesse bank. The A.O. had on the basis of above information has asked for the explanation for the profit on sale of assets on depreciable asset. Therefore, it cannot be said that the A.O. has not made inquiry, or the assessee has not furnished any explanation in respect of depreciation claimed on the new asset purchased by the assessee. It seems that your honour proposing to set aside the assessment order for further inquiry in this matter to find out whether there is any erroneous claim of depreciation has been made or not? There is nothing found from the Records of the assessment proceeding that the depreciation claim is not in accordance with the law. However, the assessee bank once again submitting chart of Depreciation for the A.Y.2018-19 in Annexure-B. From the above statement it is cleared that the depreciation as rightly claimed as per the section 32 of the Income Tax Act, 1961. Therefore, to further verify the depreciation claim without pointing out any error in the said claim will not become a ground to set aside the assessment order. 2. In para 4 of your above said notice Your honour had proposed to set aside the assessment order u/s. 143 (3) of the Income Tax Act, 1961 on the ground of non-verification of details of GST input credit lapse by the Assessing Officer at the time of assessment proceeding which is not an expense of the assessee for the year under consideration. These amounts of GST credits is related to the expenses incurred by the assessee bank during the year under consideration. The assessee bank has reduced the GST Credit from the related expenses and claimed the expenses after reducing the 100% GST Credit on such expenses. As per the Section 17(4) of the CGST Act 2017, the assesses bank has availed 50% of total GST Credit in its GST Return, 50 have been debited to the Profit and Loss Account and claimed as expenses of the current year which is allowable expense because it is reduced from expenses and now once again debited in Profit and Loss Account as per section 17 (4) of The GST Act, 2017. Your honour please note that said GST Credit lapse is not a provision made by the assessee bank. If said credit is not taken then also it will allowable expense as a part and parcel of respective expense. Your honour, please find attached statement showing details of GST Credit lapse, abstract of section 17 (4) of the CGST Act, 2017 for your ready reference in Annexure-C.
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. Your honour has stated that the learned A.O. had not asked any question regarding the claim of GST Credit lapse. At the time of the assessment proceeding, the learned A.O. has opined that the GST Credit lapse is an eligible expense and hence he has allowed the same and had not made further inquiry because it is apparent and obvious that the GST Credit lapse is an allowable expense. Therefore, your honour is saying that it is not an allowable expense is a change of opinion only. It seems that your honour proposing to set aside the assessment order for further inquiry in this matter to find out whether there is any erroneous claim of GST Credit tapes has been made or not? There is nothing found from the Records of the assessment proceeding that the GST Credit lapes claim is not in accordance with the law. Therefore, to further verify the GST Credit laps claim is correct or not without pointing out any error in the said claim will not become a ground to set aside the assessment order. 3. In para 5 of your above said notice Your honour had proposed to set aside the assessment order u/s. 143 (3) of the Income Tax Act, 1961 on the ground of disallowance of Rs.1,16,06,075/- u/s 43B Your honour in this regard please note that the assessee bank has already disallowed the said amount of Rs.2,35,31,575 in its return of income filed as mentioned in your above sais notice. During the assessment proceeding the A.O. has asked for the computation of income and the assessee bank has already submitted the copy of computation of income in which it is clearly reflected that the amount of Rs.2,35,31,575 has been already disallowed u/s43B. However, please find attached statement explaining how the amount of Rs.2,35,31,575 has been already disallowed in return of income in Annexure-D. Sir, copy of Tax Audit Report is also there on the assessment records. Therefore, from above documents and explanation it is clear that Depreciation and GST Credit lapse both are allowable expenses. Disallowance of Rs.2,35,31,575/- was already made U/s 43B during the filing of return of income. Your honour, there is no finding in the said show cause notice that the assessment order is erroneous which is prejudice to the interest of revenue. Thus, there is no point to show that the order passed by learned A.O. U/s 143 (3) is erroneous in so far as it is prejudice to the interest of Revenue within the meaning of Section 263 of the Income Tax Act.” 9. However, ld PCIT rejected the contention of the assessee and observed that assessing officer has not inquired and verified the issue of, depreciation on the purchase of new assets amounting to
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. Rs.3,11,73,124/- with supporting cogent documents like bills/vouchers/ etc. and their date of put to use. The ld PCIT also noted that assessing officer has not examined the fact that GST Credit lapse is an eligible expense and hence AO has allowed the same and had not made further inquiry because it is apparent and obvious that the GST Credit lapse is an allowable expense. Although it is an unusual claim of expenditure and assessing officer should have made inquiry regarding its nature and allowability. As regards the reconciliation of figures of amount, reported in Form 3CD of Rs.2,35,31,575/- as not allowable u/s 43B(f) and amount actually disallowed at Rs.1,19,25,500/-, there is a discrepancy of Rs.10,75,000/-, which is not reported in Form 3CD and this aspect has remained to be verified by the assessing officer. Therefore, ld PCIT observed that this shows lack of inquiry and verification and non-application of mind by the assessing officer. Thus, the assessment order passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act, dated 17.03.2021 is deemed to be erroneous in so far as it is prejudicial to the interest of Revenue. Accordingly, the assessment order passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act, dated 17.03.2021, in assessee`s was set aside with a direction to the Assessing Officer to pass fresh assessment.
Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us.
Learned Counsel for the assessee argued that assessing officer has made enquiry and verified the issue of depreciation on the purchase of new assets amounting to Rs.3,11,73,124/- with supporting cogent documents like bills/vouchers/ etc. and their date of put to use. The assessing officer has also examined the fact that GST Credit lapse
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. is an eligible expense. As regards the reconciliation of figures of amount, reported in Form 3CD of Rs.2,35,31,575/- as not allowable u/s 43B(f) of the Act, the assessee has not claimed in the computation of total income. The ld Counsel also stated that though the Assessing Officer has passed the order in brief, however the Assessing Officer has issued the notice under section 142(1) of the Act, and the issue raised by the Ld. PCIT regarding depreciation, GST and u/s 43B(f) of the Act, etc, have been examined by the Assessing Officer. Therefore, adequate enquiry has been made by the Assessing Officer and hence order passed by the Assessing Officer should not be erroneous.
On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue submitted that first of all the Assessing Officer has not discussed this issue in his assessment order. To substantiate this, Ld. DR for the Revenue took us through the assessment order passed by the Assessing Officer, which is reproduced below: “1. The case was selected for Complete Scrutiny assessment under the E- assessment Scheme, 2019 on the following issues:- S. No. Issues i. Claim of Any Other Amount Allowable as Deduction in Schedule BP ii. Expenditure of Personal Nature iii. Refund Claim iv. Sales Turnover/Receipts 2. The assessee The Surat Peoples co-operative Bank Limited, 1/573, 1st Floor, Gajanand Chambers, Por Mohallow, Besides Anand Hospital, Nanpura Surat, is engaged in the business of Banking 3.The assessee had filed return of income for A.Y 2018-19 electronically vide acknowledgement number 315776901300918 on 30-09-2018 declaring a total income of Rs.37,36,32,000/-. The case has been selected for Complete Scrutiny by CASS and notice u/s 143(2) was issued dated 22.09.2019 to the e-mail address of the assessee registered with the Department. Subsequently, notices u/s 142(1) were issued to the assessee from time to time for certain details through e-proceeding. In response to
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. the same electronic submissions were received from assessee. The detail submitted by the assessee has been examined.” 13. Therefore, Ld. DR stated that the issue raised by the Ld. PCIT has never been examined by the Assessing Officer, hence order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that assessee submitted before us following documents and evidences, viz: (i) Computation of Income and Income Tax Return for AY.2018-19 (vide PB. 1 to 3), (ii) Tax Audit Report for AY.2018-19 (vide PB. 4 to 16), (iii) Letter submitted dated 08.02.2021 with various annexures (vide PB.17 to 39), (iv) Letter submitted before AO dated 27.02.2021 with various annexures (vide PB.40 to 62), (v) Letter submitted before Income Tax Authorities dated 04.03.2021 (vide PB.63 to 65). We have gone through the above documents and noted that regarding first issue of depreciation, we note that Assessing Officer had the knowledge on the basis of information available at the time of assessment proceeding for the depreciation claimed by the assessee bank. The AO had on the basis of above information has asked for the explanation for the profit on sale of assets on depreciable asset. Therefore, it cannot be said that the AO has not made inquiry, or the assessee has not furnished any explanation in respect of depreciation claimed on the new asset purchased by the assessee. About GST credit, we note that these amounts of GST credits are related to the expenses incurred by the assessee bank during the year under consideration. The assessee bank has reduced the GST
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. Credit from the related expenses and claimed the expenses after reducing the 100% GST Credit on such expenses. As per the Section 17(4) of the CGST Act 2017, the assesses bank has availed 50% of total GST Credit in its GST Return, and 50% have been debited to the Profit and Loss Account and claimed as expenses of the current year which is allowable expense because it is reduced from expenses and now once again debited in Profit and Loss Account as per section 17(4) of The GST Act, 2017. The said GST Credit lapse is not a provision made by the assessee bank. If said credit is not taken then also it will allowable expense as a part and parcel of respective expense. At the time of the assessment proceeding, the learned AO has opined that the GST Credit lapse is an eligible expense and hence he has allowed the same and had not made further inquiry because it is apparent and obvious that the GST Credit lapse is an allowable expense. About disallowance of Rs.1,16,06,075/- u/s 43B of the Act, the assessee bank has already disallowed the said amount of Rs.2,35,31,575/- in its return of income filed. During the assessment proceeding the A.O. has asked for the computation of income and the assessee bank has already submitted the copy of computation of income in which it is clearly reflected that the amount of Rs.2,35,31,575/- has been already disallowed u/s 43B of the Act. Therefore, from above documents and explanation it is clear that Depreciation and GST Credit lapse both are allowable expenses. Disallowance of Rs.2,35,31,575/- was already made U/s 43B during the filing of return of income. Therefore, we note that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. 15. Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. 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 AO 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 AO 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 AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that 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. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of 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 and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT 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”. Therefore, we are of the considered opinion that AO’s order cannot be termed as erroneous as well as prejudicial
ITA No.278/SRT/2023/AY.2018-19 The Surat People’s Co-op. Bank Ltd. to the interest of the revenue and therefore, jurisdictional condition precedent as prescribed by statute for invoking revisional jurisdiction is absent and therefore, we are inclined to quash the impugned order dated 25.03.2022 of the ld. PCIT.
In the conclusion we are of the view that none of the reasons set out by the PCIT for invoking the jurisdiction u/s 263 of the Act are sustainable. The impugned order of the PCIT has to be quashed for the reason that order of the AO sought to be revised in the impugned order was neither erroneous nor prejudicial to the interest of the revenue for the reason of any lack of inquiry that the AO ought to have made in the given facts and circumstances of the case. We accordingly quash the order u/s 263 of the Act and allow the appeal of the assessee.
In the result the appeal of the assessee is allowed.
Order is pronounced on 16/10/2023 in the open court.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat �दनांक/ Date: 16/10/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat