INDIAN OVERSEAS BANK,CHENNAI V. .ACIT, NFAC, , DELHI

ITA 1569/CHNY/2024

AI Insights

The case involves the Indian Overseas Bank (the appellant) challenging the order of the Principal Commissioner of Income Tax, Chennai-4 (the respondent), which invoked revisional powers under section 263 of the Income Tax Act, 1961, on the grounds that the assessment order under section 143(3) was erroneous and prejudicial to the interests of the revenue. The Tribunal examined various issues raised by the PCIT, including the treatment of deemed income under section 41(1), the applicability of Rule 87 concerning provident fund contributions, and the handling of capital gains on asset sales to Asset Reconstruction Companies (ARCs). The Tribunal concluded that the PCIT's order did not adequately demonstrate how the original assessment was erroneous or how it prejudiced the revenue's interests, leading to the quashing of the PCIT's order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 472183 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2019-2020
• Other Referred Cases: Malabar Industries Ltd. vs. CIT, Vikas Polymers, Gabreil India Ltd, Comtrade Commodities Services Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILAY BARAN SOM
• Assessee Lawyers: C. NARESH
• Keywords: Set aside; Business expenditure; Depreciation; Capital Gains; TDS; Earning of tax free income; Deemed to accrue or arise in india; Revision of order
• Section: 143(3); 263; 2; 20

Judgement Text

" आयकर अपीलीय अिधकरण, ‘ए’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI ᮰ी मनु कुमार िगᳯर, ᭠याियक सद᭭य एवं ᮰ी एस. आर. रघुनाथा, लेखा सद᭭य के समᭃ BEFORE SHRI MANU KUMAR GIRI, HON’BLE JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 1569/Chny/2024 िनधाᭅरण वषᭅ / Assessment Year: 2019-20 Indian Overseas Bank, 763, Anna Salai, Anna Road, Chennai – 600 002. [PAN: AAACI-1223-J] v. The Principal Commissioner of Income Tax, Chennai -4, Chennai -600 034. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri. C. Naresh, CA ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri. Nilay Baran Som, CIT सुनवाई कᳱ तारीख/Date of Hearing : 25.09.2024 घोषणा कᳱ तारीख/Date of Pronouncement : 18.12.2024 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: This appeal by the assessee is filed against the order of the Principal Commissioner of Income Tax (Appeals), Chennai-4, for the assessment year 2019-20 vide order dated 29.03.2024. 2. The grounds of appeal raised by the assessee are as under: “1. On the facts and circumstances of the case and in law, the Id. PCIT erred in invoking the provisions of section 263 and revising the order of AO passed u/s 143(3) dated 30/9/2021 without coming to conclusion the order was erroneous but merely directing the AO to re-examine various issues. 2. On the facts and circumstances of the case and in law, the Ld PCIT erred in passing the order u/s 263 without taking into :-2-: ITA. No:1569/Chny/2024 consideration the specific submissions made by appellant to the show cause notice. Without prejudice to above grounds on jurisdiction, even on merits 3. On the facts and circumstances of the case and in law, on the issue chargeability u/s 41 (1) the appellant had furnished the amount of expenses accounted by it in respect of the specific vendors and same were examined and correctly allowed by the AO. 4. On the facts and circumstances of the case and in law, the profit arising on assets sold to reconstruction companies were correctly offered to tax in the return of income as against charging to tax the entire sale proceeds as contended by Ld PCIT. 5. On the facts and circumstances of the case and in law, the provisions of Rule 87 cannot be made applicable to a non- contributory fund as in the appellant's case and in any case appellant's ordinary annual contribution is only ten percent of pay of employees which is within the limits laid down in Rule 87. 6. On the facts and circumstances of the case and in law, the Id. PCIT erred in directing the AO to examine the submissions on all other issues in the notice notwithstanding the fact that these amounts had been correctly claimed as deduction. Your appellant craves leave to add, to amend and/or vary the grounds of appeal before or at the time of assessment.” 3. Brief facts of the case: 3.1 The assessee is a public sector bank and filed the return of income for the A.Y. 2019-20 on 29.10.2019 showing a total loss of Rs.5848,45,60,281/-. The return was processed u/s.143(1) by CPC on 28.03.2021 and the returned loss was reduced to Rs.5748,34,43,392/-. Subsequently, the case was selected for complete scrutiny assessment under E-Assessment scheme, 2019 on the following issues: :-3-: ITA. No:1569/Chny/2024 - Claim of any other amount allowable as deduction in Schedule BP - Exports / Imports - High creditors / Liabilities (BL06) - Depreciation claim - Default in TDS - Loss from currency fluctuations - Investment / Advances / Loans - Business Loss - Refund Claim - ICDS Compliance and Adjustment - Taxability of business liability written off u/s.41 or any other section(BL07) - Expenses incurred for earning exempt income - Excess contribution to provident fund, superannuation fund or Gratuity fund - Business Expenses - Capital Gains / Income on sale of property - Expenditure by way of penalty or fine for violation of any law. After hearing from the assessee and by considering the submissions, the Assessment u/s.143(3) of the Act was completed by the AO on 30.09.2021 by making an addition of Rs.10416,81,71,397/- and the total income was determined at Rs.4668,47,28,005/-. Subsequently, the ld.PCIT issued a show cause notice dated 18.10.2023 and 14.12.2023 to the assessee to explain as to why the said assessment order be set aside by invoking the revisionary powers u/s.263 of the Act. 3.2 The Ld.PCIT, on perusal of the submissions made by the assessee, passed an order dated 29.03.2024, directing the AO to examine the issues raised in SCN by holding as under for the A.Y.2019-20: :-4-: ITA. No:1569/Chny/2024 “09. The submissions and the contentions of the assessee have been duly considered. It is apparent from the scrutiny assessment order that the AO failed to examine a number of issues, involving substantial tax implication. The A0 failed to examine whether deemed income u/s 41(1) of Rs.68,87,766/ is required to be offered by the assessee write- off of the credit balances of 11 of the creditors. In course of the current proceedings on account of despite being informed of the Name & PAN of the said 11 creditors and also the amount written off, the assessee insisted that details of the invoices and dates be provided and only thereafter it can submit its explanation. It is strange that such information is being sought from the Department rather than the assessee itself examining the ledgers of these vendors and their related invoices. Since the said aggregate amount of Rs.68,87,766/- has been written off, the assessee should have offered the same for taxation as deemed income u/s.41(1). Moreover, it is noted that the assessee during the relevant year has received a gross amount of Rs.851.23 crores on sales to ARCs which comprised of the cash component of Rs.495.48 crores and the balance Rs.355.75 crores on account of investment in ARCs. The assessee has computed the gains on this sale by claiming that the gross outstanding was of Rs.1452.95 crores and the provision made against this was of Rs.957.47 crores resulting in net book value of Rs.495.48 crores. However, the AO has failed to verify the claim that against the gross outstanding, provision of only Rs.957.47 crores has been made. This is relevant since for computing the gain on sale to ARCs, the assessee has reduced the net book value from the total consideration of Rs.851.23 crores received on sale to ARCs. Further the AO had also failed to examine as to whether the contribution to PF/Superannuation fund was contravention to Rule 87 of the Income Tax Rules. The AO is directed-to examine the submissions made by the assessee in course of these proceedings and decide as per law. Further, the AO is directed to examine the made submissions and decide as per respect of the other issues raised in course of the revisionary proceedings law. 10. In view of the aforesaid discussion, the clauses (a) and (b) of Explanation 2 to Sec.263 are clearly attracted since the AO has failed to conduct enquiries in especially in respect of deemed income u/s 41 on write-off of balances of the vendors, the gain shown on sales made to ARCs and whether the contribution made to PF/Superannuation fund was in contravention to Rule 87 of the Income Tax Rules. Therefore, the assessment order passed under section u/s 143(3) r.w.s. 144B dated 30.09.2021 by the Assessing Officer for the assessment year 2019-20 is considered to be erroneous and prejudicial to the interests of revenue, within the meaning of Sec. 263 of the I.T. Act, 1961. The same is hence partly set aside, with the direction to the Assessing :-5-: ITA. No:1569/Chny/2024 Officer to pass appropriate fresh assessment order within the stipulated time after making necessary enquiries as per the discussion in the preceding paragraphs, after providing due opportunity to the assessee of being heard.” Aggrieved by the order of the ld.PCIT u/s.263 of the Act, the assessee has challenged the same before us. 4. The Ld.AR for the assessee stated that the order u/s.263 of the Act was passed against the order passed by the AO u/s.143(3) of the Act without considering the submissions made by assessee and by not correctly appreciating the factual and legal claims of assessee as detailed below: a) TDS u/s. 194 IA: The ld.PCIT had presumed that even though credit for TDS was claimed u/s.194IA no income was offered to tax under capital gains. The assessee had established before ld.PCIT that capital gains was offered to tax by assessee as evident from the submissions made and reproduced in the order. The Ld.PCIT has not given any findings as to why the order of the AO is erroneous and prejudicial to the interest of the revenue and accordingly is invalid as per the decisions cited above. b) Applicability of Rule 87: The assessee had submitted that the provisions of Rule 87 will not apply to a non-contributory fund and since the assessee’s :-6-: ITA. No:1569/Chny/2024 superannuation fund was a non-contributory fund the provisions of rule 87 cannot apply. It was also submitted that even if it is held applicable the ordinary annual contribution is only 10% as evident from the Pension Fund Regulations and since the contribution to PF is 10%, the same is within the limit of 27% prescribed under Rule 87. As ld. PCIT required the assessee to without prejudice to the above compute the percentage of contribution and it was submitted that even if all the above submissions are ignored the contribution is only 23.39% as reproduced in page 11 of ld.PCIT order. The ld.PCIT held the order to be erroneous and prejudicial to the interest of the revenue merely for the reason that the issue was not examined by AO without specifying as to how taking into consideration the submissions made by assessee, the order is erroneous and prejudicial to the interest of the revenue. c) Income u/s.41(1): The assessee on this issue clearly explained to the ld. PCIT that only the expenditure that is approved for payment is accounted for irrespective of the bill amount and hence the question of offering any amount to tax u/s.41(1) for the reason that suppliers have written off the amounts do not arise. Further the assessee had requested the Ld.PCIT to furnish the details of actual expenditure accounted in respect of the parties. :-7-: ITA. No:1569/Chny/2024 In spite of furnishing all the data the Ld.PCIT held the order to be erroneous prejudicial of the interest of the revenue without establishing that the income is chargeable under section 41(1) of the Act. d) Provision for wage arrears: The assessee had given a detailed submission as to the basis on which provision had been made for wage arrears which has been summarised by ld.PCIT in page No.17 & 18 para 6 & 6.1 of his order. The ld.PCIT has not given any findings as to why the order of the AO is erroneous and prejudicial to the interest of the revenue and accordingly is invalid as per the decisions cited above. e) Employee Stock Purchase Scheme(ESPS): The assessee had given the detailed working in respect of the amount of discounts debited to profit and loss account and claimed as deduction. Further this issue is also covered by various judicial decisions including Karnataka High Court in the case of Biocon Ltd (121 taxmann.com 351) Hon'ble Madras High Court in the case of PVP Ventures Ltd (23 taxman.com 286). The ld.PCIT has not given any findings as to why the order of the AO is erroneous and prejudicial to the interest of the revenue and accordingly is invalid as per the decisions cited above. :-8-: ITA. No:1569/Chny/2024 f) Appreciation / Depreciation on securities: The Assessee had submitted that the claim was made in accordance with binding Income Computation and Disclosures Standards- VIII (ICDS) relating to securities which requires the amount provided in accordance with RBI guidelines to be allowed as a deduction which is reproduced in page 20 of the order. The ld.PCIT has not given any findings as to why the order of the AO is erroneous and prejudicial to the interest of the revenue and accordingly is invalid as per the decisions cited above. g) Provisions and Contingencies: The Assessee had furnished the breakup of provisions and contingencies and clearly demonstrated that the entire amount was added back was offered to tax as reproduced in page 15 of the order. The ld.PCIT has not given any findings as to why the order of the AO is erroneous and prejudicial to the interest of the revenue and accordingly is invalid as per the decisions cited above. h) Sale of assets to ARC: The Assessee had clearly explained that the entire gain on sale of ARC was credited to P&L account and offered to tax as evident from the submissions summarised by ld.PCIT in page 26 para 8 of the order. In spite of the same ld.PCIT held the order under section :-9-: ITA. No:1569/Chny/2024 143(3) to be erroneous and prejudicial to the interests of the revenue only for the reason that provisions made in respect of this accounts was not verified by AO. This is in spite of the fact that all the details for available in the notes to accounts filed before AO. Further the ld.PCIT failed to note when the entire profit has been offered to tax the order cannot be erroneous or prejudicial to the interest of revenue. A compilation of the relevant case laws which was given to ld. CIT-DR is enclosed. 4.1 The Ld.AR for the assessee submitted that the issues raised by the ld.PCIT have been already examined by the AO during the assessment proceedings under section 143(3) and the detailed submissions were made before AO. Copy of letter filed before AO was also given to the Hon'ble bench and learned ld.PCIT at the time of hearing. As explained at the time of hearing, the detailed submissions on these issues were considered by the AO and order u/s.143(3) of the Act was passed and accordingly it is submitted that the ld.PCIT erred in treating the said order as erroneous and prejudicial to the interest of the revenue. :-10-: ITA. No:1569/Chny/2024 4.2 Further in respect of a number of issues the ld.PCIT had not formed an opinion that the order of AO was erroneous and prejudicial to the interest of the revenue but merely set aside the order of AO without drawing a conclusion based on facts and law that the order is erroneous and prejudicial to the interest of the revenue. Reliance for this view is placed on following decisions of Hon'ble Courts: - Delhi High court - Vikas Polymers (194 Taxman 57) - Bombay High Court - Gabreil India Ltd (71 Taxman 585) and - ITAT Ahmedabad - Comtrade Commodities Services Ltd (156 taxmann,com 369). In view of the above it is respectfully submitted that the Ld. PCIT grossly erred in treating the order under section 143(3) of the Act as erroneous and prejudicial to the interest of the revenue. 5. Per contra, the ld.DR relied on the orders of the ld.PCIT. 6. We have heard the rival contentions, perused the materials available on record and gone through the orders of the lower authorities. In the circumstances before adjudicating the issues arising from the impugned order, we have to first examine the scope of revisional jurisdiction u/s. 263 of the Act. For that, let us take the guidance of judicial precedence laid down by the Hon'ble :-11-: ITA. No:1569/Chny/2024 Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s.263 of the Act is exercised by the Ld.CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the Assessing Officer's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) Assessing Officer's order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated the issue before him. 6.1 In the circumstances enumerated above only the order passed by the Assessing Officer can be termed as erroneous for the purpose of Section 263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined, one has to understand what is prejudicial to :-12-: ITA. No:1569/Chny/2024 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. The Hon’ble Supreme Court held that for invoking powers conferred by Section 263; the CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but CIT must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordship in the said judgment held 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. It was further observed that when the Assessing Officer adopts 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 Ld. CIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law. 6.2 Keeping the aforesaid legal principles in mind when we apply the same to the facts of the present case, we note that the issues that has been raked up by the Ld.PCIT in the present case, :-13-: ITA. No:1569/Chny/2024 emanated from perusal of order u/s.143(3) of the Act of the AO dated 30.09.2021 for the A.Y. 2019-20: - TDS U/S.194 - IA - Rule 87 - Income u/s.41(1) - Employee Stock Purchase Scheme(ESPS) - Provisions Contingencies - ARC Sale - Wage Revision - Depreciation on securities - Top Ten NPA Borrowers 6.3 The ld.PCIT was of the view that the action of the AO was erroneous and prejudicial to the interest of Revenue and by setting aside the AO’s order u/s.143(3) of the Act directed the AO to examine the above issues and take appropriate action as per the law for the A.Y. 2019-20. 6.4 The aforesaid assertion of the ld.PCIT that the AO while scrutinizing the assessment has failed to verify the issues stated (supra) is contrary to the facts revealed from the records and found to be incorrect assertion of the Ld.PCIT. This fact is revealed from perusal of the details / documents filed before us that the AO had selected for scrutiny assessment to verify various issues stated supra, which includes the following issues raked up by the ld.PCIT in his order. :-14-: ITA. No:1569/Chny/2024 Issues raised Para of Notice U/s.142(1) Response given in TDS U/S.194IA Page 2 Para 4 Page 2 & 3 Para 4 Rule 87 Page 4 Para 10 Page 6 Para 10 Depreciation on Securities Page 4 Para 15 Page 8 para 15 - annexure 5 Top 10 NPA borrowers Page 4 Para 12 Page 7 para 12 - annexure 4 6.5 These issues under the order of the AO u/s.143(3) of the Act, are considered by the AO specifically raised the question by issuing notice to the assessee and the same have been addressed by written submissions and the AO has drawn conclusions in accordance with law while framing the assessment orders. Therefore, the action of the AO allowing the claim of assessee cannot be held to be erroneous as well as prejudicial to the Revenue. 6.6 Further, as submitted by the assessee and perusal of the documents, we note that the following issues are part of the disclosure shown in the annual report of the assessee and the computation of income reported: - Employee Stock Purchase scheme - Provisions and contingencies - ARC Sales - Wage Revision - Income u/s.41(1) :-15-: ITA. No:1569/Chny/2024 6.7 We note that out of these issues, on the issue of ARC Sales the ld.PCIT has stated that AO had failed to examine the provision made against the gross book value. In our opinion and as seen from the records, when the aggregate value (net of provisions) of accounts has been clearly reduced from the aggregate sale consideration to arrive the gain over the net book value, again verifying the provision figure becomes futile exercise. In respect of other issue i.e. taxability of income u/s.41(1) of the Act, when the expenditure is itself is based on the approved amount for expenditure without having balance liability on account of such expenditure in the Balance sheet, the question of applying section 41(1) of the Act based on the write off made by the vendors does not arise. 6.8 Therefore, the findings of the ld.PCIT on these two issues lacks merit and hence the order of the AO cannot be treated as erroneous. Therefore, the ld.PCIT has erred in treating the said order as erroneous and prejudicial to the interest of the revenue. 7. We also note that in respect of other 3 issues namely i) Employee Stock Purchase scheme, ii) Provision and contingencies and iii) Wage revision, the ld.PCIT had not formed an opinion that the order of AO was erroneous and prejudicial to the interest of the :-16-: ITA. No:1569/Chny/2024 revenue but merely set aside the order of AO without drawing a conclusion based on facts and law that the order is erroneous and prejudicial to the interest of the revenue. Therefore, we concur with the assessee’s reliance on the following decisions of Hon'ble Courts: - Delhi High court - Vikas Polimers (194 Taxman 57) - Bombay High Court - Gabreil India Ltd (71 Taxman 585) and - ITAT Ahmedabad - Comtrade Commodities Services Ltd (156 taxmann,com 369). Therefore, the AO has considered the submissions and assessment records available and framed the assessment, cannot be found faulted with by the ld.PCIT. 8. In the light of the aforesaid facts, we are of the view that the assessee succeeds and the ld.PCIT(TP) erred in invoking his jurisdiction u/s.263 of the Act and hence the same is quashed for 2019-20. 9. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 18th December, 2024 at Chennai. Sd/- (मनु क ुमार िगįर) (MANU KUMAR GIRI) Ɋाियक सद˟/Judicial Member Sd/- (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखासद˟/Accountant Member चे᳖ई/Chennai, ᳰदनांक/Dated, the 18th December, 2024 JPV :-17-: ITA. No:1569/Chny/2024 आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3.आयकर आयुƅ/CIT– Chennai 4. िवभागीय Ůितिनिध/DR 5. गाडŊ फाईल/GF "