WILSON MIKHAEL TOPNO,BHARATPUR vs. THE PCIT, VADODARA-1, VADODARA

The Ld. PCIT, therefore, initiated proceeding u/s 263 of the Act and after allowing an opportunity of being heard to the assessee passed the order u/s 263 of the Act dated 29.03.2023 whereby the assessment was set aside to the file of the Assessing Officer with a direction to pass fresh assessment order de novo after taking into consideration, the issues as discussed in the order u/s 263 of the Act. Aggrieved with the order of the Ld. PCIT, the assessee has filed this appeal and has raised the following Grounds of Appeal:

Shri Rajiv Goyal, Ld. A.R. of the assessee submitted that the assessee was an employee of GE Power India Ltd. and his services were terminated by the employer. As part of the retirement benefits, the employer company had procured an Annuity policy from LIC in favour of the retiring employees. A sum of Rs. 15 lac was directly paid by the employer to LIC for the allotment of the Annuity policy in assessee’s favour. However, this amount was erroneously added by the employer to the assessee’s salary income. Additionally, the employer company had paid Income Tax of Rs.4,50,000/- on behalf of the employee which was exempt from tax as a non-monetary perquisite u/s 10(10CC) of the Act. The assessee had also claimed retrenchment compensation of Rs.4,51,900/- as exempt u/s 10(10B) of the Act. The Ld. A.R submitted that the A.O. had meticulously examined these matters and conducted thorough inquiries before approving the assessee’s claim and exemptions. He pointed out that six notices u/s 142(1) of the Act were issued which clearly demonstrated that the matter was deeply and (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 8 – comprehensively examined by the A.O. before approving the assessee’s claims. As it was not a case of “no inquiry”, the order of the A.O. can’t be held as erroneous. He contended that where two views are possible and if the A.O. had taken one of the views, the order cannot be held as erroneous and pre-judicial to the interest of Revenue. In this regard, he placed reliance on the decision of Hon’ble Supreme Court in the case of Malabar Industrial Company Ltd. Vs. CIT 243 ITR 83 (SC). The Ld. A.R. contended that the basic condition of the order of the A.O. being erroneous and prejudicial to the interest of Revenue was not satisfied in this case. Therefore, the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act was not correct. According to the Ld. AR, it was not a case where the A.O. had failed to make any inquiry rather the A.O. had made extensive inquiries and had taken a plausible view in accordance with law. He, therefore, requested to cancel the order of the Ld. PCIT.

Per contra, Shri Sameer Tekriwal, Ld. CIT-DR appearing for the Revenue strongly supported the order of the Ld. PCIT. He submitted that when the salary disclosed as per Form No. 16 was Rs.36,95,179/-, the A.O. should have critically examined why the salary disclosed in the IT return was much lesser. He further (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 9 – submitted that the A.O. did not make any inquiry with the employer to verify the genuineness of the exemptions as claimed in the return. In the absence of any such enquiry the order of the AO was certainly erroneous and prejudicial to the interest of revenue. As regarding sum of Rs. 15 lac paid by the employer directly to LIC for purchasing the Annuity policy, the Ld. CIT- DR submitted that this issue was covered by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Navnit Lal Sakar Lal 113 taxmann.com 692 (SC), and there was no two opinion in respect of this issue. He also placed reliance on the decision of the Hon’ble Delhi High Court in the case of Yoshio Kubo Vs. CIT 36 taxmann.com 1 (Delhi) and the decision of coordinate bench of this tribunal in the case of Sanghi Infrastructure Ltd. in ITA No. 1285/AHD/2018.

We have carefully considered the submissions made by the rival parties and the materials brought on record. The moot question to be decided in this case is whether the order of the A.O. was erroneous and prejudicial to the interest of revenue and whether the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act was correct. In this context it will be relevant to (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 10 – examine the provisions of Section 263 of the Act, which is reproduced below: Revision of orders prejudicial to revenue. 263. (1) The 99[Principal Chief Commissioner or Chief Commissioner or 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 1[or the Transfer Pricing Officer, as the case may be,] 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, 2[including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section].

As per the Explanation 2, the order passed by the A.O. shall be deemed to be erroneous and pre-judicial to the interest of revenue if the order is passed without making inquiries or verifications which should have been made or where the order is passed allowing any relief without enquiring into the claim. Further as per clause (d) of the Explanation, if the order is not passed in accordance with any decision rendered by the Supreme Court in any case and which is pre-judicial to the assessee, then in such instance also the order will be held as erroneous and pre- judicial to the interest of revenue. We have to, therefore, examine as to whether these conditions were fulfilled in this case and whether the assumption of jurisdiction by the Ld. PCIT u/s 263 of the Act was correct.

There is no dispute to the fact that gross salary shown in Form No. 16 was Rs.40,50,274/- and after allowing exemption in respect of conveyance, gratuity, leave encashment and tax on employment, the net salary as certified by the employer was Rs.36,95,179/-. On the other hand the assessee had shown salary (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 12 – of Rs.13,80,639/- only in the return of income and after adjustment of house property loss and deduction under chapter- VIA, net income of Rs.10,914,725/- was shown in the return. It was, therefore, incumbent upon the Assessing Officer to verify the huge difference in the salary as per Form No. 16 and the salary as disclosed in the ITR. The assesse has contended that deep enquiry was conducted by the AO in the course of assessment proceeding by issue of notice u/s 142(1) on multiple occasions and that it was not a case of ‘no enquiry’. From the copy of evidences brought on record by the assessee, it is found that the matter was indeed enquired by the AO. However, the questions raised by the AO in various notices were identical and the reply of the assesse was also the same. The relevant questions raised by the AO and the response of the assessee to those queries are found to be as under: (Questions) 1. It is seen that in the pay slip for December, 2017 and assessee's reply dated 08.04.2020, it is mentioned as Voluntary Retirement Scheme. However, in the reply dated 10.10.2020, the assessee has stated that he has received retrenchment compensation. Please explain the same. 2. Please furnish confirmation letter from the Employer whether assessee has taken voluntary retirement or retrenched from service. 3. Please furnish the total break-up of compensation received. (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 13 –

The assessee received retrenchment compensation on premature termination of his employment.

Pursuant to your notice the assessee visited the office of the employer company several times to seek relevant material to be furnished to you but due to covid-19 pandemic he was handicapped and not allowed to access into the office and his efforts could not materialize. His serviced were terminated he is entitled to retrenchment compensation under the provisions of law. It is self evident from Form 16 in which a huge amount has been shown as payment to the assessee and it represents compensation. His age is around 34 years at the time of termination of his employment and he has not completed with full tenure of service which proves that he received big amount of compensation for loss of employment. 3. A copy of the income tax computation statement showing break-up of compensation issued by the employer is enclosed is A_1. 4. You have misinterpreted the true implication and real import of the provisions of section 17(2)(v) of IT Act, 1961 corresponding to section 7(1) of IT Act 1922 and ignored the landmark verdicts of the Hon'ble Apex Court and the Hon'ble High Courts resulting in gross miscarriage of justice. The sum of Rs. 15 lac paid to LIC by the employer company and not to the assessee employee (as per the letter issued by the LIC and the Master policy constituting a contract between the employer company and the LIC) does not form part of the assessee's total income as per the verdict of the Hon'ble Apex Court in CIT v L W Russel u/s 17(2)(v) of IT Act, 1961 and is not (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 14 –

In the course of proceeding u/s 263 of the Act, Ld. PCIT had made inquiry from the employer M/s. GE Power India Ltd. in order to confirm the nature of payments made to the assessee. The relevant query made by the ld. PCIT and the reply of the employer as reproduced in the impugned order is found to be as under: Query 2: Vide para 3.1. Kindly clarify: • Whether the LIC Annuity Policy payment and income-tax liability are both taken as perquisite in form No. 16 of these employees for tax purpose. • Whether the income-tax liability in respect of LIC Annuity Policy payment has been treated as exempt u/s 10(10CC) of Income Tax Act, 1961 in the form No. 16. If so, whether disallowance u/s 40(a)(v) of the Income-tax Act, 1961 has been made by you in your return of income in respect of Income-tax liability of these employees relating to LIC Annuity Policy payment borne by you as an employer. Response: In this regard, please our response as follows: No, the LIC Annuity Policy payment and income-tax liability are not taken as perquisite in form No. 16 of these employees. Also, neither the Income- tax liability in respect of such LIC Annuity Policy payment has been treated as exempt u/s 10(10CC) of the Income Tax Act, 1961 in form 16. Nor any disallowance u/s 40(a)(v) of the Income-tax Act, 1961 has been made in our return of income. The said LIC Annuity amount was paid to LIC on the request of these employees and hence such income paid under Voluntary Retirement Scheme (VRS) is taxable in the hands of these employees. Further the company has also provided an exemption of Rs. 5,00,000/- against VRS u/s 10(10CC) of the Income-tax Act, 1961. The copies of LIC Annuity authorization letter alongwith LIC annuity letter on sample basis as proof are enclosed as Annexure-3.

It is thus evident from the above facts, that the AO had not conducted proper inquiries in respect of the claims as made in the return of income and, therefore, the order was rightly treated as erroneous and pre-judicial to the interest of revenue by the Ld. PCIT. As pointed out by the Ld. CIT-DR, it was held by the Hon’ble Supreme Court in the case of Navnit Lal Sakar Lal (supra) that the amount utilized by the employer for obtaining deferred annuity policy would form part of remuneration payable to the assesse and was chargeable under the head “salaries”. Therefore, the annuity amount of Rs. 15 lakh paid to LIC by the employer was remuneration of the assesse and taxable as salary. As the order of the AO was not in accordance with the decision of the Apex Court the order of the AO was erroneous and pre-judicial to the interest of revenue for this reason as well. (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 19 – 13. The decisions relied upon by the Ld. AR are all found different on facts and not applicable to the peculiar facts of this case. It is a trite law and a well settled position that non application of mind or wrong assumption of facts or incorrect application of law by the A.O. will make the order erroneous and pre-judicial to the interest of Revenue. Therefore, we do not find anything wrong with the assumption of jurisdiction u/s 263 of the Act by the Ld. PCIT as the order of the AO was erroneous and pre-judicial to the interest of Revenue for the reasons as already discussed above. We, therefore, upheld the order of the Ld. PCIT. The grounds of appeals taken by the assessee are dismissed.

In the result, the appeal filed by the assessee is dismissed. to ITA No. 470/AHD/2023:

The fact involved in all these appeals is identical to the fact of ITA No. 471/Ahd/2023. In these cases also the order of the Assessing Officer was found to be erroneous and prejudicial to the interest of revenue and the Ld. PCIT had passed order u/s 263 of the Act on different dates. The order challenged in these appeals and the issues on which the order of the AO was held as erroneous and prejudicial to the interest of revenue in these cases is summarized in the table below: (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 20 –

In all these eight cases as well, huge difference was found in the salary as per Form No. 16 and the salary as disclosed in their respective ITR. The facts of the cases on the issues of payment to LIC in respect of annuity scheme, exemption claimed u/s 10(10CC) of the Act and the exemption u/s 10(10B) of the Act is identical to the facts as discussed in ITA No. 471/Ahd/2023. The AOs had completed the assessments without making any enquiry from the employer and without examining whether these claims were admissible. The enquiry made by the Ld. PCIT from the employer had revealed that the annuity amount (Imtiyaz Karimbhai Vhora vs. PCIT) & 8 Ors. A.Y.– 2018-19 - 21 – paid to LIC by the employer was remuneration of the assesse and taxable as salary. Similarly, the claim of exemption u/s 10(10CC) and u/s 10(10BB) of the Act made by the assessees and as allowed by the AOs were wrong and incorrect. As the order of the AO was erroneous and pre-judicial to the interest of revenue in these cases as well, the revisionary order passed by the Ld. PCIT u/s 263 of the Act in all these eight cases is upheld and their respective appeal is dismissed.

In the result, the appeal filed by all the nine assessees is dismissed.