Appeal details
Counselvise Citation
[2024] 101 COUNSELVISE.COM (IT) 9024 (ITAT-RAJKOT)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 8 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-01-2024
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Next Hearing Date
01-11-2023
Assessment Year
2017-2018
Appeal Filed On
22-05-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o .1 7 6 /R j t /2 02 2 ( A s se ss m e nt Y e a r : 20 17- 1 8 ) Ku tch D is tr ic t C o- O p. Mil k Pr od u ce rs ’ U n io n L td. , C/ o . A P M C Pr e m is e s , Ve r si m e d i na k a , N r . R a il w a y Cr o s s in g Ro ad , An j ar , K ut c h V s . The P r i nc ip al C o m m is s i on e r of I n c o me T a x, R aj ko t- 1, R aj ko t [P AN N o. A A A A K 9 84 5 N ] (Appellant) .. (Respondent) Appellant by : Shri Akshay Modi, A.R. Respondent by: Shri Shramdeep Sinha, CIT DR D a t e of H ea r i ng 02.11.2023 D a t e of P r o no u n ce me nt 29.01.2024 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax-1, (in short “Ld. PCIT”), Rajkot in DIN & Order No. ITBA/REV/F/REV5/2021- 22/1040419075(1) vide order dated 07.03.2022 passed for Assessment Year 2017-18. 2. The assessee has taken the following grounds of appeals:- “1. On the facts and in the circumstances of the case as well in law, the learned Pr. CIT, Rajkot-1, Rajkot erred in having assumed jurisdiction u/s 263 of the Act in order to substitute his subjective view in place of judicious view taken by the AO on the same set of facts and materials on records, for the deduction claimed u/s 80P(2)(d) of the Act (subject to the availability of gross total income), by holding that the order passed u/s 143(3) of the Act dtd. 06-11-2019 was erroneous in so far as it ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 2 - is prejudicial to the interest of the revenue and being unsustainable in law, is liable to be nullified or annulled in toto. 2. On the facts and in the circumstances of the case as well in law, the learned Pr. CIT, Rajkot-1, Rajkot erred in having assumed jurisdiction u/s 263 of the Act directing the AO to deny the deduction claimed u/s 80P(2)(d) of the Act, as allowed in the assessment order u/s 143(3) of the Act passed, after due inquiry and in-depth verification of the relevant assessment records and therefore, the order u/s 263 of the Act passed by the Pr. CIT, Rajkot-1, Rajkot arbitrarily, prejudicially and subjectively on incorrect and inappropriate facts and figures, being without jurisdiction, bad in law, void ab initio, illegal and hence, is liable to struck down. 3. On the facts and in the circumstances of the case as well in law, the learned Pr. CIT has wrongly invoked the revision proceedings under Explanation 2(a) below Section 263 of the Act, solely on the basis of revenue audit objections, without examination of the "records" of the proceedings under the Act and hence, the order passed u/s 263 of the Act being influenced by the revenue audit objections and without application of unbiased and independent mind by the Pr.CIT, being patently in contravention to the provisions of law and the law laid down by the Apex Court in Sirpur Paper Mill Ltd. Vs. CWT (1970) 77 ITR 6 (SC) is without jurisdiction, bad in law and hence, liable to be struck down. 4. On the facts and in the circumstances of the case as well in law, the learned Pr. CIT has grievously failed to appreciate in the right, lawful and proper perspectives, the documentary evidences available in the assessment records and the detailed explanations substantiated by the documentary, authentic and cogent evidences submitted during the course of revisionary proceedings, while arbitrarily and subjectively relied upon the revenue audit objections, without appreciating the fact that the order u/s 143(3) of the Act passed by the AO was neither prejudicial to the interest of the revenue nor an erroneous and hence, the order u/s 263 of the Act is liable to be struck down. 5. Without any prejudice to the above, on the facts and in the circumstances of the case as well in law, the order of the learned Pr. CIT u/s 263 of the Act suffers from serious illegalities in as much as, according to the settled position in law and in consideration of the same set of facts in existence consistently allowing the deduction claimed u/s 80P(2)(d) of the Act by the AO and/or the appellate authorities (as explained during the assessment/revisionary proceedings) and therefore, the order passed u/s 263 of the Act invoking Clause (a) of the Explanation 2 of Section 263 of the Act patently in violation of “rule of consistency” is bad in law, without jurisdiction, arbitrary, invalid and hence, liable to be quashed. 6. Your appellant further reserves its rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of an appeal.” ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 3 - 3. The brief facts of the case are that the assessee filed return of income for AY 2017-18 on 31.10.2017 declaring total income of Rs. 2,47,97,470/-. The assessment was completed under Section 143(3) of the Income-tax Act on 06.11.2019 accepting the returned income of Rs.2,61,44,051/-. The principal CIT observed that on particular examination of the records, it was noticed that the assessee had shown interest income of Rs.5,60,55,842/- from its investment in three Co.-Op. Banks (Rs.3,18,51,280/- in Cosmos Co-Operative Bank Ltd., Rs.1,59,27,427/- in Kutch District Central Co-Operative Bank Ltd., and Rs. 82,77,425/- in Rajkot Nagrik Sahkari Bank). The PCIT was of the view that in light of Section 80P(2)(d), deduction to co-operative society will be allowable only in respect of any income by way of interest or dividends derived by the assessee cooperative society from its investments with any other co-operative society and not from co- operative banks. The assessee had received interest income of Rs. 5,60,55,842/-from Co-op. Banks, hence interest income of Rs. 5,60,55,842/- was required to be taxed and benefit of deduction claimed by the assessee society under Section 80P(2)(d) of the Act should have been disallowed. However, the AO while completing the assessment had not examined the facts of the case and the issue under consideration. Therefore, according to PCIT, this has rendered the order erroneous as well as prejudicial to the interest of the revenue. In view of the above, after taking the submissions of the assessee on record, the PCIT held that the assessment order is erroneous and prejudicial to the interest of the ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 4 - revenue. While passing the order under Section 263 of the Act, the PCIT made the following observations: “20. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed allowing any relief without inquiring into the claim. However, the AO did not conduct any such inquiries or verification and simply accepted the assessee's submission. In this manner the assessee's case is also covered under para 'a' of Explanation 2, of Section 263(1) of I.T. Act. Therefore the order passed by the AO is erroneous to that extent. 21. Keeping in view these facts, I am of the considered view that this is a fit case for invoking Section 263 of IT. Act as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied. The AO is directed to make fresh assessment keeping in view the observations made above, after conducting necessary verifications and inquiries and after providing proper opportunity of being heard.” 4. The assessee is in appeal before us against the order passed by PCIT under Section 263 of the Act. Before us, the counsel for the assessee submitted that firstly, the issue whether deduction can be claimed under Section 80P of the Act on interest from company- operative banks has been decided in favour of the asses by various Courts and Tribunals. Accordingly, the view taken by the assessing officer while passing the assessment order is not erroneous in the eyes of law. Secondly, the counsel for the assessee placed on record various judicial presidents in support of the proposition that once the assessing officer has taken a legally plausible view, which is not erroneous then 263 proceedings cannot be resorted to by the P CIT only with a view to supplant his own view, with the view of the assessing officer, simply for the reason that this would have lead to higher taxation. Thirdly, it was submitted that the issue was examined in detail during the course of assessment proceedings and the PCIT has erred in facts in observing in ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 5 - the 263 order that the issue was not examined by assessing officer during the course of assessment proceedings. The counsel for the assessee drew our attention to page 68 of the appeal papers (Reply of the assessee dated 25.04.2019) where in the assessee had submitted that it had claimed deduction of interest income received from cooperative bank and dividend income from cooperative society under Section 80P of the Act. The counsel for the assessee further drew our attention to notice dated 23.10.2019 issued by assessing officer, wherein a specific query on this aspect was asked by the assessing officer (reference query number 2 and query number 4 of the aforementioned notice). The counsel for assessee drew our attention to reply of the assessee dated 25.10.2019, in response to the above query made by the assessing officer with respect to details of interest received from cooperative banks by assessee on which deduction under Section 80P of the Act was claimed by the assessee. Further, the counsel for the assessee invited our attention to the computation of income, wherein the assessee had specifically declared the details of interest received by the assessee from cooperative banks and corresponding claim of deduction under Section 80P of the Act on such interest income. Accordingly, the counsel for the assessee submitted that this issue has been examined in detail by the assessing officer during the course of assessment proceedings and has taken a legally plausible view, and therefore, this is not a fit case for invocation or proceedings under Section 263 of the Act. 5. In response, DR placed Reliance on the case of Babulal Solanki v ITO in ITA number 3493/Ahd/2016 in which it was held that ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 6 - assessment order is liable to be set aside when the assessment is finalised without conducting proper investigation and enquiry and prima facie, the assessment was erroneous and prejudicial to the interest of the revenue. Further, DR also placed Reliance on the case of Katlary Kariana v ACIT 140 taxman.com, 602 (Gujarat High Court) in which the Gujarat High Court held that where Assessing Officer reopened assessment of assessee on ground that interest derived from surplus funds invested by assessee in nature of FDRs in Co-operative Banks and Nationalized Bank other than Co-operative Societies would not fall in category to be entitled to claim deductions under Section 80P(2)(i) and Section 80P(2)(d), as assessee had not truly explained such interest in return of income and reasons recorded by Assessing Officer were self- explanatory, clear and unambiguous, Assessing Officer had rightly formed opinion that income had escaped assessment, Further, DR submitted that it is a well settled law that decisions rendered by the jurisdictional High Court are required to be followed by the assessing officers falling within the jurisdiction of the High Court. Accordingly, it was submitted that in light of the above decisions, and the facts of the instant case, the assessment order is liable to be set aside being erroneous and prejudicial to interest of the revenue. 6. We have heard the rival submissions and perused the material record. 7. An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 7 - Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under Section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. 8. Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry “12...... There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This Section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 8 - examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income- tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.” 9. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):- “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.” 10. The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to Section 263 in the following words: ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 9 - “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.” 11. The Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee- company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. The facts of this case were that respondent assessee has filed its return of income showing total income of Rs. 62,55,900/- which was assessed under Section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt. Ltd and M/s. Purba Agro Food Pvt. Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 10 - Section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balance sheet of the respective companies. The PCIT passed an order under Section 263 of the Act directing the Assessing Officer to pass fresh assessment order under Section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent assessee. The Hon’ble Supreme Court made the following observation while deciding in favour of the assessee: “Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.” 12. The Supreme Court in another recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates [2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revisional order making addition to assessee's income under Section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 11 - income. The Principal Commissioner passed a revisional order under Section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal thus set aside revisional order passed by Commissioner. The High Court upheld Tribunal's order. The Supreme Court while dismissing the SLP filed by the Department held as under: “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed” 13. In our considered view, this is not a fit case for invocation of provisions of Section 263 of the Act. This is for the reason that firstly, we observe that the assessing officer had examined the issue in detail during the course of assessment proceedings, and it is not a case where there was any apparent lack of enquiry on this aspect by the assessing officer. Secondly, the assessing officer had taken a view which is a legally plausible view and it is a well settled law that 263 proceedings cannot be resorted to by the PCIT only with the view to supplant his own view with the view taken by the assessing officer. Further, the decision of Katlary Kariana Supra was on the aspect of reopening of assessment under Section 147 of the Act and not directly on the issue of claim of reduction under Section 80P of the Act. Therefore, once it is seen from the records ITA No.176/Rjt/2022 Kutch District Co.Op. Milk Producers’ Union Ltd. vs. PCIT Asst.Year –2017-18 - 12 - that the assessing officer had made due enquiries during the course of assessment proceedings on this aspect and had taken a view, which is a legally possible view, then, in our considered view PCIT cannot resort to 263 proceedings only to supplant his own view with the view taken by the Assessing Officer. Further, we observe that the PCIT has also factually erred in observing that there was no enquiry by the assessing officer on this aspect. Accordingly, in light of the facts of the instant case, and the judicial president of the subject, we hold that the order passed by PCIT under Section 263 of the Act is liable to be set aside. 14. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 29/01/2024 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 29/01/2024 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot
