DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-8, PUNE, PUNE vs. SANDVIK COROMANT INDIA PVT LTD, PUNE

ORDER

PER DR. DIPAK P. RIPOTE, AM:

C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited dated 11.08.2023 emanating from the order of ld.Assistant Director of Income Tax, CPC under section 143(1) of the Act, for A.Y.2018-19dated25.02.2020. Also, the assessee is before us as a Cross-Objector for the aforementioned year. The Revenue in has raised the following grounds of appeal : “1. On the facts and circumstances of the case and in law, the ld.CIT(A), while dealing with the grounds raised by the assessee with regard to the disallowance of gratuity payment of Rs.6,20,00,000/- made u/s.43B of the Act, erred in directing the AO to verify whether such payment was made during the year as per provisions of law and allow the claim of the assessee based o the outcome of such verification, when the admissibility of such payment as deduction ought to have been decided by the ld.CIT(A) himself.

2. On the facts and circumstances of the case and in law, the ld.CIT(A) erred in issuing directions to the AO which have the effect of setting aside the assessment in contraventions of the provisions contained in clause (a) of sub-section (1) of Section 251 of the Income Tax Act, 1961, which mandates that in an appeal against an order of assessment, the CIT(A) may confirm, reduce, enhance or annul the assessment.

3. On the facts and circumstances of the case and in law, the ld.CIT(A) erred in not disposing the same in the manner as provided in Sec.251(1)(a) of the Income Tax Act, 1961.

4. The Order of the ld.CIT(A) be set aside and that of the AO be restored.

5. The appellant craves leave to add, amend or alter any of the above grounds of appeal.”

2. The Assessee in Cross Objection Appeal No.7/PUN/2024 raised the following grounds of appeal : “A. On the facts and in the circumstances of the case and in law, the learned AO has erred in objecting the order of Ld.CIT(A) :

C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited

1. Disallowance under section 43B of the Act : The Respondent submits that the addition of Rs.6.20 crore made by disallowing the gratuity payment under section 43B is invalid since no such adjustment can be made under sub clauses (i) to sub clause (vi) of sub section (a) of section 143(1) of the Income-tax Act, 1961 and hence, the addition made is not justified at all.” Brief facts of the case : 3. In this case, assessee had filed Return of Income u/s.139(1) of the Act on 29.11.2018 for A.Y.2018-19. The said Return of Income was processed u/s.143(1) of the Income Tax Act, 1961 by Assistant Director of Income Tax, (Centralized Processing Centre), [ld.ADIT] Bangalore on 25.02.2020. In the order u/s.143(1), the ld.ADIT made a disallowance u/s.143(1)(a)(iv), the same is scanned and reproduced as under : (iv) Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return- 143(1)(a)(iv) S.No Particulars Amount in Amount Variance Income mentioned Tax Return in Form Annexure 3CD 1 Inconsistency in amount 272747199 217067536 55679663 disallowed under section 43B in any preceding previous year but allowable during the previous year 2 Inconsistency in amount 381278315 418302485 37024170 debited to profit and loss account of the previous year but disallowable under section 43B

C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited

Submission of ld.AR : 6. Ld.Authorised Representative(ld.AR) for the assessee filed a paper book containing 586 pages. Ld.AR vehemently argued that ld.ADIT, CPC has erred in making the adjustment u/s.143(1)(a)(iv). Ld.AR submitted that in the Audit Report there was no mention of any such expenditure for which disallowance was required. Ld.AR took us through section 143(1)(a)(iv) of the Act. Ld.AR also took us through the Audit Report that there was no expenditure indicated in the Audit Report which was to be C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited disallowed but not disallowed in computation of income. The amount of Rs.6,20,00,000/- was gratuity payment which was made during the year and claimed expenditure u/s.36(1)(v) r.w.s. 43B of the Act. The ld.AR submitted that assessee had claimed expenses for gratuity on payment basis u/s.36(1)(v) r.w.s. 43B of the Act. Ld.AR submitted that u/s.143(1) the Department does not have any jurisdiction to make a disallowance of Rs.6,20,00,000/-. Therefore, the order u/s.143(1) is bad in law.

6.1 Ld.AR also explained that ld.CIT(A)[NFAC] infact has not set-aside the issue to the AO for verification as ld.CIT(A) has given a specific finding at page 19 of the order that if gratuity payment of Rs.6,20,00,000/- was paid during A.Y.2018-19, then it was an allowable expenditure. Therefore, ld.CIT(A)[NFAC] had decided the issue on merits, hence, Revenue’s ground of appeal is factually incorrect.

Submission of ld.DR : 7. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer(AO). The ld.DR submitted that the ld.CIT(A)[NFAC] does not have any power to C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited set-aside the order for denovo verification by Assessing Officer. In this case, the ld.CIT(A)[NFAC] directed AO to verify, hence, the order is bad in law.

Findings & Analysis : 8. We have heard both the parties and perused the record. The Section 143(1) of the Act is reproduced here as under :

Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; [(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub- section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80- IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:] 84[Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;] (b) the tax 85[, interest and fee], if any, shall be computed on the basis of the total income computed under clause (a);

C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited

(c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax 85[, interest and fee], if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self- assessment and any amount paid otherwise by way of tax 86[, interest or fee]; (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and (e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee: Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax 86[, interest or fee] is payable by, or no refund is due to, him: Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made. Explanation.—For the purposes of this sub-section,— (a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; (b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).

C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited disallowed in computation of Income. In this case, the expenditure of Rs.6,20,00,000/- was not indicated in the Audit Report for disallowance. This fact has not been rebutted by the Revenue. Once, the impugned expenditure was not indicated in the Audit report for disallowance, the said amount is outside the preview of Section 143(1)(a)(iv) of the Act. Therefore, the ld.ADIT(CPC) had no jurisdiction to make any disallowance of Rs.6,20,00,000/- u/s.143(1)(a)(iv) of the Act. In this case the ADIT had made disallowance u/s.143(1)(a)(iv) of the Act of Rs.6,20,00,000/-, therefore, the disallowance is outside the scope of section 143(1)(a)(iv) of the Act. Accordingly, Cross Objection appeal raised by the assessee is allowed.

Revenue : 10. Since we have decided the Cross Objection appeal filed by the assessee in favour of assessee, the Revenue’s appeal becomes academic in nature. Therefore, though in principle, we agree with ld.DR that ld.CIT(A)[NFAC] does not have any power to set-aside the issue to the AO, but the ld.CIT(A)[NFAC] has to decide the issue on merit, if required, he may ask the Assessing Officer to submit a Remand Report on this issue. Accordingly, Grounds of C.O.No.7/PUN/2024 [A] M/s.Sandvik Coromant India Private Limited appeal raised by the Revenue are dismissed as academic in nature, once we have decided the Cross Objection filed by the assessee.

Order pronounced in the open Court on 7th May, 2024.