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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 called into question correctness of impugned order passed by the Learned Principal Commissioner of Income Tax, under section 263 of the Income tax Act, 1961, in the matter of assessment under section 143(3) of the Act for the assessment year 2018-19, on the following grounds: “
1. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in passing the order u/s. 263, although the assessment order passed u/s. 143(3) of the I. T. Act, 1961 was neither erroneous nor prejudicial to the interest of the revenue.
2. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in setting aside the order passed u/s. 143(3) with a direction to the assessing officer to pass fresh assessment order after taking into consideration, the issues as may have already been considered together with the issues discussed in order. Accordingly, PCIT has erred in setting with the issues discussed in order. Accordingly, PCIT has erred in setting aside the assessment order making it wide open instead of restricting the issues raised in the show cause notice.
3. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in holding that the amount of /AY.2018-19 D. V. Properties Pvt. Ltd. Rs.3,85,407/- being addition to block of asset claimed as deduction from short term capital gain is disallowable.
4. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in holding that the PF & ESI amounting to Rs.43,433/- (Rs. 42,193/- + 1,240/-) on account of employee contribution is disallowable under Explanation of sec 36(1)(va).
5. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in holding that the amount of Rs.3,145/- being component of Cess on Service Tax claimed by the assessee as expense is disallowable u/s. 43B.
6. On the facts and in circumstances of the case as well as law on the subject, the learned Pr. CIT has erred in holding that the amount of Rs.194/- being interest on late payment of TDS is disallowable u/s. 37(1).
7. It is therefore prayed that above order passed by Pr. CIT u/s. 263 may please be quashed or modified as your honours deem it proper.
8. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Brief facts of the issue in dispute are stated as under. The assessee before us is a Private Limited Company and had filed its return of income for A.Y. 2018-19, on 17.11.2018, declaring total income at Rs. Nil. The assessee`s case was selected for complete scrutiny under E-Assessment Scheme, 2019, having specific issue of examination as high ratio of refund to TDS. The scrutiny assessment under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act, 1961 was completed on 15.02.2021.
Later on, Learned Principal Commissioner of Income Tax,( in brief ‘Ld PCIT’) has exercised his jurisdiction, under section 263 of the Income Tax Act, 1961. On perusal of the computation of income data available on ITBA portal, it was noticed by ld PCIT that the assessee has shown Short Term Capital Gain of Rs.4,61,11,299/- on the Multiplex sold during the year under consideration. The working of the STCG has been examined and noticed that the assesses has debited
/AY.2018-19 D. V. Properties Pvt. Ltd. an amount of Rs.3,85,407/- on account of addition during the year. However, on perusal of the submission available in the ITBA portal, it was noticed that no details with respect to this deduction claimed of Rs.3,85,407/- is available. Without proper examination, the AO has allowed the deduction claimed by the assessee. In absence of any documentary evidences available in the ITBA portal, the same needs to be disallowed.
Further, it was noticed by ld PCIT from the Form 3CB Col. 20(b), that the following PF and ESI contributions received from employees have not been deposited within the due dates: Employee Contribution Due Date of payment Actual Date of payment (In Rs.) 3313 15.05.2017 25.05.2017 4143 15.06.2017 20.06.2017 4187 15.07.2017 19.07.2017 4504 15.08.2017 24.08.2017 PF 4340 15.09.2017 05.10.2017 4329 15.10.2017 17.10.2017 4161 15.11.2017 21.11.2017 4342 15.12.2017 18.12.2017 4405 15.02.2018 21.02.2018 4469 15.04.2018 21.04.2018 ESI 606 21,05.2017 25.05.2017 634 21.09.2017 22.09.2017 Total 43433/- As per provision of section 36(1)(va) of the Act, the contribution paid after the due date is not eligible for deduction. The same is to be disallowed. But as per the computation of income available in ITBA portal, for A.Y. 2018-19, it was noticed by ld PCIT that the assessee has not disallowed the same.
/AY.2018-19 D. V. Properties Pvt. Ltd. 5. Further on perusal of the Audit report, it was noticed by ld PCIT that the Service tax of Rs.3,145/- was not paid upto the date of fifing of Return of income, hence the same is not allowable u/s 43B of the Act.
It was also noticed by ld PCIT from the Profit and Loss account that the assessee has claimed Rs.194/- as interest paid on late payment of TDS, which is not allowable as per the provision of section 37(1) of the Act.
In view of the above facts, the ld PCIT observed that in the computation of STCG, the amount of Rs.3,85,407/- debited on account of addition made during the year under consideration, without any documentary evidence, PF and ESI contribution of Rs.43,433/- received from employees but deposited after the due date, failure to pay service tax of Rs.3,145/- upto the date of filing of return of income and interest paid of Rs.194/- on late payment of TDS are not allowable as per the income Tax Act, 1981. Hence, the aggregate amount of Rs.4,32,179/- ( Rs.3,85,407 + Rs.43,433 + Rs.3,145 + Rs.194) were required to be disallowed and added to the total income of the assessee for the year under consideration, while finalizing the assessment proceedings. But the AO has not inquired properly into the above referred issues and has not disallowed Rs.4,32,179/- and has passed the assessment order without application of his mind. Therefore, ld PCIT has issued the show cause notice to the assessee to explain the above issues.
In response to the show cause notice, the assessee submitted its reply before the ld PCIT. However, ld PCIT rejected the contention/reply of the assessee and held that while finalizing the assessment proceedings, the assessing officer (AO) has not /AY.2018-19 D. V. Properties Pvt. Ltd. inquired/verified the issues as discussed above, for the year under consideration, which reflects non-application of mind by the Assessing Officer. Thus, the assessment order passed u/s 143(3) r.w.s. 143(3A) & 143(38) of the Act, dated 30.03.2021 was treated by ld PCIT to be erroneous in so far as it is prejudicial to the interest of the Revenue.
Aggrieved by the order of ld PCIT, the assessee is in appeal before us. 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 has submitted the following documents and evidences before us, Viz: (i) Tax Audit report, dated 01.09.2018 (vide Pb.1 to 20), (ii) Audit Report along with the audited financial statements, dated 02.09.2018 (vide Pb.21 to 47), (iii) Acknowledgment of Return of Income along with computation of Total income for AY 2018-19, dated 17.11.2018 (vide Pb.48 to 52), (iv) Notice u/s 142(1) issued by the assessing officer, dated 11.11.2020 (vide Pb.53 to 54), (v) Reply filed before the assessing officer, in response to the notice issued by AO, dated 25.11.2020 (vide Pb.55 to 56), (vi) Show cause notice issued u/s 263 by PCIT, dated 12.12.2022 (vide Pb.57 to 59), (vii) Letter filed before the PCIT, dated 22.12.2022 (vide Pb.60 to 67), (viii) Ledger of Multiplex (Theatre) of AY 2018-19 (vide Pb.68), (ix) Bills of additions made to theatres (vide Pb.69 to 72), (x) Relevant bank statement of Axis bank evidencing payments (vide Pb.73 to 77) and (xi) Ledger of service tax expense of AY 2018-19 (vide Pb.78 to 79). The ld Counsel submitted that ld PCIT has raised four small issues in his order under section 263 of the Act, the /AY.2018-19 D. V. Properties Pvt. Ltd. aggregate amount of these four issues comes to Rs.4,32,179/- (Rs.3,85,407 + Rs.43,433 + Rs.3,145 + Rs.194).
Regarding the claim of deduction of Rs.3,85,407/- being the amount debited on addition made during the year under consideration, from the STCG on sale of the Multiplex, the ld Counsel has contended that information regarding addition to multiplex account was available in the Schedule (2.3) of Fixed assets and the depreciation was a part of Statutory Audit Report and the assesses has disclosed the details in Form No. 3CD attached with the return of income (ROI). The ld Counsel also stated that the assessment order was finalised after perusal of ROI, material available on record and replies filed in response to notice issue u/s 142(1) of the Act. Thus it is clear case of proper application of mind and examination of the details available on record. Therefore ld Counsel has contended that order passed u/s 143(3) of the Act on 15.02.2021 was neither erroneous nor prejudicial to the interest of the revenue.
On the issue of late payment of PF & ESI of Rs.43,433/-, the ld Counsel has contended that all the necessary information in respect of deduction of Rs.43,433/- were available in Form-No. 3CD and the assessee have correctly claimed the deduction following the provisions of the law as well as relying upon certain judgements.
On the issue of the claim of service tax expense of Rs.3,145/-, the ld Counsel has contended that as per the Provisions of Service tax Act, assessee had paid service tax under reverse charge mechanism and 0.5% of Swatchh Bharat Abhiyari and 0.5% of Krishi Kalyan Cess out of total service tax was claimed as expenditure and remaining portion of service tax @ 14% was set off against the amount payable. The /AY.2018-19 D. V. Properties Pvt. Ltd. assessee has contended that the AO has rightly allowed the claim of Service tax Expense.
On the issue of claim of interest on TDS of Rs.194/-, the ld Counsel has contended that the said expenditure was incurred by the assessee wholly and exclusively for the purpose of carrying on the business and as per section 37(1) of the Act, only such expenditure which are incurred in connection with business and offence for an illegal act or breach of law or prohibition of law are alone not allowable and in other cases and more particularly in this case, the interest in respect of TDS was only in the nature of compensation of revenue to the Government of late payment of TDS. It was further submitted that the amount of TDS is not income tax for the assessee but it is the amount of income tax deducted and paid by the assessee on behalf of the third party. Thus, it is not a payment of income tax, the said expenditure incurred by the assessee is wholly and exclusively for the purpose of business and the delay in making payment of TDS late is not like a penalty and it does not amount to payment for breach of law or illegal act or prohibited act.
On the other hand, Learned Departmental Representative (ld. DR) for the Revenue relied on the order of ld. PCIT.
We have considered the submission of both the parties. We note that regarding the claim of deduction of Rs.3,85,407/- being the amount debited on addition made during the year under consideration, from the STCG on sale of the Multiplex, we find merit in the submission of the ld Counsel. We note that information regarding addition to multiplex account was available in the Schedule (2.3) of Fixed assets and the depreciation was a part of Statutory Audit Report
/AY.2018-19 D. V. Properties Pvt. Ltd. and the assesses has disclosed the details in Form No. 3CD attached with the return of income (ROI). The assessment order was finalised after perusal of ROI, material available on record and replies filed in response to notice issue u/s 142(1) of the Act, therefore order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue, hence we allow this issue of the assessee.
On the issue of late payment of PF & ESI of Rs.43,433/-, we note that this issue is covered against the assessee by the judgment of the Hon`ble Supreme Court in the case of CHECKMATE SERVICES P. LTD , vide CIVIL APPEAL NO. 2833 OF 2016, dated 12.10. 2022. Therefore, we dismiss this ground of assessee.
On the issue of the claim of service tax expense of Rs.3,145/- , we note that as per the Provisions of Service tax Act, assessee had paid service tax under reverse charge mechanism and 0.5 % of Swatchh Bharat Abhiyan and 0.5 % of Krishi Kalyan Cess, out of total service tax was claimed, as expenditure and remaining portion of service tax @ 14% was set off against the amount payable. Therefore the AO has rightly allowed the claim of Service tax Expense, hence we allow this ground of assessee.
On the issue of claim of interest on TDS of Rs.194/-, we note that issue before us for interest component and not the TDS. We find merit in the submission of ld Counsel to the effect that the amount of TDS is not income tax for the assessee but it is the amount of income tax deducted and paid by the assessee on behalf of the third party. Thus, it is not a payment of income tax, the said expenditure incurred by the assessee is wholly and exclusively for the purpose of business and the delay in making payment of TDS late, is not like a penalty, and /AY.2018-19 D. V. Properties Pvt. Ltd. it does not amount to payment for breach of law or illegal act or prohibited act, therefore we allow this ground raised by the assessee.
The judicial precedent laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 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 PCIT. 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 /AY.2018-19 D. V. Properties Pvt. Ltd. PCIT 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 note that order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue except to the ground relating to PF and ESI of Rs.43,433/- which we have dismissed. In case of other grounds of assessee, the Assessing Officer has taken a possible and reasonable view, therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue (except PF and ESI of Rs.43,433/-), therefore we allow the appeal of the assessee partly.
In the result, appeal filed by the assessee is partly allowed to the extent indicated above.
Order is pronounced on 29/08/2023 in the open court.