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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’, NEW DELHI BEFORE, SH. CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SH. PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.1797/Del/2022 (Assessment Year : 2020-21) Honda India Power Products Vs. DCIT Ltd., Circle – 10(1) 409, DLF Tower B, New Delhi Jasola Commercial Complex, New Delhi – 110 025 PAN No. AAACH 8464 L (APPELLANT) (RESPONDENT) Assessee by Ms. Shaily Gupta, C.A. and Shri Archit Kabra, C.A. Revenue by Shri N. K. Bansal, Sr. D.R. Date of hearing: 04.10.2023 Date of Pronouncement: 06.10.2023
ORDER PER PRADIP KUMAR KEDIA, AM :
The captioned appeal has been filed by the assessee against the First Appellate Order of the Learned Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) dated 15.07.2022 arising from the intimation order dated 27.12.2021 passed by Centralized Processing Centre (CPC) under section 143(1) of the Income Tax Act, 1961 (the Act) concerning Assessment Year 2020-21.
The grounds of appeal raised by the assessee reads as under: 1. “That on the facts and circumstances of the case and in law, the order dated 15 July 2022 passed by National Faceless Appeal Centre (‘NFAC’) under section 250 of the Income-tax Act, 1961 (‘the Act') is illegal, bad in law and is liable to be quashed.
ITA No. 1797/Del/2022 Honda India Power Products Ltd. vs. DCIT 2
That on the facts and circumstances of the case and in law, the order has been passed not only in gross violation of principles of natural justice but also the mandatory procedure provisions of the Faceless Appeal Scheme 2021 (notified by CBDT via notification No. 139/2021) and is without jurisdiction, illegal and bad in law and liable to be quashed.
That the NFAC erred on facts and in law in affirming the impugned disallowance without appreciating that the intimation order issued under section 143(1) was passed with issuing the intimation of the adjustment under section 143(1)(a) of the Act, in violation of the mandatory provisions, and thereby the impugned order is without jurisdiction, illegal and had in law and hence liable to be quashed.
That the NFAC failed to appreciate that the intimation issued under section 143(1) lacks jurisdiction, since the same was issued much after issuance of scrutiny notice under section 143(2) of the Act, and hence liable to be quashed.
That the NFAC erred on facts and in law in confirming the disallowance made in the intimation order passed under section 143(1) of the Act and assessing the income of appellant at Rs. 1,02,09,79,990 as against the returned income of Rs.1,00,65,47,630 under normal provisions of the Act.
That the NFAC erred on facts and in law in affirming the disallowance without taking into consideration the appellant's arguments, material relied upon and without providing the appellant any opportunity to explain its position in this regard.
That the NFAC erred on facts and in law in confirming adjustment of INR 144,32,367 under section 43B of the Act in respect of provision for gratuity payable, merely on account of mismatch between reporting in Tax Audit Report vis-à-vis ITR.
That the NFAC erred in not appreciating the fact that the appellant suo moto disallowed the amount of INR 144,32,367 as provision for gratuity payable, inadvertently under section 40A(7) in the place of section 43B of the Act, in its return of income and the disallowance resulted in double addition of the very same amount.”
As per grounds of appeal, the assessee has essentially challenged the upward adjustment of Rs.1,44,32,367/- on account of provision for gratuity payable to the returned income.
When the matter was called for hearing, learned Counsel for the assessee submitted at the outset that aforesaid adjustment has been carried out by the CPC on
ITA No. 1797/Del/2022 Honda India Power Products Ltd. vs. DCIT 3 account of “provision for gratuity”provided in the Profit and Loss account which has reduced the declared profits of the entity. It was pointed out that the tax auditor has reported the disallowance at row no. 26(i)(B)(b) of the Tax Audit Report and shown the disallowance on account of such provision for gratuity of Rs.1,44,32,367/- under section 43B(b) of the Act. It was pointed out that no disallowance was shown in the tax audit report towards such provision under section 40A(7) of the Act as per row no.21(e) of the tax audit report furnished under section 44AB of the Act. The assessee, however, in its return of income has disallowed the provision for payment of gratuity under the umbrella of section 40A(7) as per row no.9(c) of the return of income instead of disallowance under section 43B of the Act. Thus, in effect, the disallowance for provision towards gratuity was carried out under section 40A(7) instead of section 43B of the Act. The CPC while processing the return, however, has captured the information on disallowance under section 43B reported in the Tax Audit Report on standalone basis and carried out adjustment under section 43B towards provision for gratuity disregarding the disallowance already carried out by assessee under section 40A(7) of the Act. The adjustment carried out by the CPC, thus, has the effect of double disallowance, one under section 40A(7) suo moto done by the assessee in the ROI and other, under section 43B as reported in the Tax Audit Report. In this backdrop, the learned Counsel contends that the disallowance of provision towards gratuity is not per se in challenge. What under challenge is the double disallowance thereof. The learned Counsel also simultaneously pointed out that while proposing adjustment in the income returned, the CPC has not given any intimation for such proposed adjustment as required under section 143(1)(a) read with proviso thereto. It was thus contended that such double disallowance has been carried out without any opportunity to the assessee to explain the subsisting facts. The learned Counsel thus urged for suitable relief in the matter.
On perusal of the case records and having regard to the contentions raised on behalf of the assessee, we find demonstrable merit in the plea of the assessee alleging disallowance of same expenditure twice which is impermissible in law. We also take notice of the plea that opportunity ought to have been given to the assessee before
ITA No. 1797/Del/2022 Honda India Power Products Ltd. vs. DCIT 4 embarking on such adjustments as expressly codified in section 143(1) of the Act. Simultaneously, we also note the observation of the CIT(A) in para 5.4.4 that the assessee has not uploaded the relevant page of tax audit report which contains the provision for payment of gratuity disallowable under section 40(A)(7) of the Act. Thus, it appears that complete facts were not available before the CIT(A) for taking an informed view.
In the factual backdrop, we consider it expedient to remit the matter back to the file of the concern AO for taking into account the evidences and submissions made on behalf of the assessee. Where it is found a matter of fact that the disallowance of provision for gratuity has been carried out in some manner and taxable income has been correctly disclosed, the double disallowance, both, under section 40A(7) as well as 43B would not be sustained. In such a situation, to negate the double disallowance, it will be incumbent upon the AO to reverse the disallowance carried out in the intimation under section 143(1) in question. Needless to say, a reasonable opportunity shall be given to the assessee while determining the issue. It shall be open to the assessee to adduce the evidences and offer explanations before the AO in support of the relief sought.
Hence, in terms of such observations, the intimation for A.Y. 2020-21 is set aside and issue towards double disallowance of provision for gratuity is restored back to the file of the AO for fresh determination in accordance with law.
In the result, appeal of the assessee is allowed for statistical purposes.
Order was pronounced in the open court on 06.10.2023
Sd/- Sd/- (CHANDRA MOHAN GARG) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:- 06.10.2023 Priti Yadav, Sr. PS*
ITA No. 1797/Del/2022 Honda India Power Products Ltd. vs. DCIT 5 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI