Kosana Rama Koteswara Rao, Hyderabad V. Assistant Commissioner of Income Tax, Circle-2(1), Guntur

ITA 189/VIZ/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0874 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-09-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 04-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Period of limitation; Time period of passing order; Condonation of delay
• Section: 263; 14A; 2(A)

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.189/Viz/2021 (ननधधारण वर्ा / Assessment Year : 2015-16) Kosana Rama Koteswara Rao C/oKatrapati & Associates 1-1-298/2/B/3, 1 st Floor Ashok Nagar, Hyderabad [PAN : AGMPK3818J] Vs. Asst. Commissioner of Income Tax Circle-2(1) Guntur अपीलधथी की ओर से/ Appellant by : Shri GVN Hari, AR प्रत्यधथी की ओर से / Respondent by : Shri MN Murthy Naik, CIT(DR) सुनवधई की तधरीख / Date of Hearing : 06.09.2022 घोर्णध की तधरीख/Date of Pronouncement : 13.10.2022 O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : Condonation of Delay : This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax [in short, (Pr.CIT)], Guntur dated 23.03.2020 for the Assessment Year (A.Y.) 2015-16 with the delay of 501 days. Hon’ble Supreme Court of India in it’s Suo Motu Writ Petition (Civil) No(s).3/2020 ordered that the period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further 2 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur order/s to be passed by the Court. Since then, the Hon’ble Supreme Court has been extending the limitation period. Respectfully following the order of the Hon’ble Apex Court, since the period in filing the application belatedly is within the limitation period prescribed by the Hon’ble Apex Court, we condone the delay and admit the application for hearing. 2. Brief facts of the case are that the assessee is engaged in cotton cultivation, filed his return of income for the A.Y.2015-16 on 30.11.2015, declaring total income of Rs.23,11,920/-. Subsequently, the case was selected for limited scrutiny under CASS and an assessment order u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) was passed by the Assessing Officer (AO) on 14.08.2017, assessing total income at Rs.31,85,470/-. Subsequently, by virtue of powers vested u/s 263, the Ld.Pr.CIT called for records of the assessee for the A.Y.2015-16, examined the same and noticed that investments during the previous year corresponding to A.Y.2015-16 have increased by an amount of Rs.1,63,00,000/- from previous year corresponding to A.Y.2014-15 and during the previous year corresponding to A.Y.2015-16, assessee has taken unsecured loans from others to the tune of Rs.95,64,788/-. Also, exempt income, being dividend of Rs.14,18,000/- was received during the previous year corresponding to A.Y.2015-16, out of the investments made by the 3 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur assessee. The Ld.Pr.CIT observed that the expenses claimed by the assessee in earning exempt income ought to have been disallowed as per the provisions of section 14A of the Act. However, no such disallowance was made by the AO in the assessment order passed. The Ld.Pr.CIT held that the order passed by the AO is erroneous and prejudicial to the interest of the revenue as per the provisions of section 263 of the Act. Accordingly, a show cause notice was issued and served on the assessee as to why the assessment order passed by the AO should not be revised u/s 263 of the Act. In response to which, the assessee submitted that certain interest expenses were incurred by him on loans taken from various entities (both secured and unsecured loans) for various purposes which were included in income and expenditure statement for his accounts purpose. However, the assessee stated that expenses of Rs.94,839/- & Rs.54,063/- incurred towards payment of interest on housing loans, Rs.27,411/- incurred towards interest paid on tractor loan and Rs.2,04,000/- incurred as interest paid towards unsecured loans taken from R.K.Biotech are the only amounts claimed by the assessee in the return of income. The Ld.Pr.CIT after careful examination of the submissions of the assessee, material available on record and also the assessment record held that Section 14A of the Act states that any expenses incurred in relation to earning of exempt income 4 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur should not be allowed as deduction in computing the total income of the assessee. The Ld.Pr.CIT observed from the return of income that during the year under consideration, the assessee has earned exempt income being dividend of Rs.14,18,000/- and the assessee claimed expenses being interest paid in the return of income. The Ld.Pr.CIT viewed that the assessee ought to have made disallowance on his own as per the provisions of section 14A r.w.s. 8D of I.T.Rules, 1962, which he failed to do so. The assessee has not disputed the above facts before the Ld.Pr.CIT except pressing on his point that the order passed by the AO is not erroneous and prejudicial to the interest of the revenue. All the above facts of the assessee having earned exempt income during the year under consideration and the assessee having claimed expenses in his return of income were placed before the AO, but the AO failed to apply the provisions of section 14A to the assessee’s case. Therefore, the Ld.Pr.CIT held that it is evident that there is no case for not applying the provisions of section 14A in assessee’s case. Accordingly, the Ld.Pr.CIT relying on various judgements held that the order passed by the AO is erroneous and prejudicial to the interest of the revenue as per explanation 2(a) and 2(b) of section 263 of the Act, therefore directed the AO to revise the assessment order by applying the provisions of section 14A of the Act r.w.r.8D of the I.T.Rules, 1962 and 5 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur disallow an amount of Rs.4,19,638/- on the lines indicated above in accordance with law and established procedure by affording the assessee a reasonable opportunity of being heard. 3. Aggrieved by the order of the Ld.Pr.CIT the assessee preferred an appeal before the Tribunal and raised the following grounds : 1. The order of the learned Pr.Commissioner of Income Tax is not justified both on facts and under the law. 2. The learned Pr.Commissioner of Income Tax, in the facts and circumstances of the case, is not justified in invoking the provisions of section 14A. 3. The learned Pr.Commissioner of Income Tax is not justified in directing the Assessing Officer to disallow an amount of Rs.4,19,638/- without appreciating the contention that the appellant claimed only Rs.2,04,000 as a deduction towards interest on loans. 4. The learned Pr.Commissioner of Income Tax failed to appreciate the fact that the interest of Rs.2,04,000/- claimed relate to loans taken in certain years and hence not relatable to investments made during the year. 5. The initiation of proceedings u/s 263 is based on assumptions and presumptions. 6. The appellant reserves his right to add, amend, delete or substitute any ground or grounds during the course of hearing. 4. The assessee has filed petition for admission of the following additional ground, submitting that the same was not raised in the grounds of appeal due to inadvertence : 6 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur On the facts and in the circumstances of the case, the Pr.Commissioner of Income Tax erred in holding the assessment order dt.14.08.2017 as erroneous on the issue of disallowance u/s 14A of the Act, which was outside the scope of limited scrutiny. Since the ground raised is legal in nature, we admit the same for hearing keeping in view the principles of natural justice. 5. Ground No.1,2, 5 and 6 are general in nature which does not require specific adjudication. 6. Ground No.3 and 4 relate to disallowance of an amount of Rs.4,19,638/- and non consideration of claim of Rs.2,04,000/- as deduction towards interest on loans. The Ld.AR submitted that the assessee had taken unsecured loans from R.K.Biotech and claimed the same in the return of income, not relatable to investments made during the year. The Ld.AR submitted that the Ld.Pr.CIT is not justified in directing the AO to disallow an amount of Rs.4,19,638/- without considering the assessee’s claim of deduction of Rs.2,04,000/- towards interest on loans. The Ld.AR pleaded to set aside the order passed by the Ld.Pr.CIT and allow the appeal of the assessee on this ground. 7. On the other hand, the Ld.DR relied on the order passed by the Ld.Pr.CIT and requested to uphold the order passed and dismiss the appeal of the assessee on this ground. 7 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur 8. We have heard both the parties and perused the material placed on record. The main grievance of the assessee is that the Ld.Pr.CIT is not justified in directing the AO to disallow an amount of Rs.4,19,638/- without considering the assessee’s claim of deduction of Rs.2,04,000/- towards interest on loans. Another grievance of the assessee is that the assessee had taken unsecured loans from R.K.Biotech and claimed the same in the return of income, not relatable to the investment made during the year. On this aspect, it is undisputed fact that the assessee has not claimed any expenditure. The assessee has raised an additional ground regarding the disallowance made by the Ld.Pr.CIT u/s 14A of the Act, which was outside the scope of limited scrutiny. Admittedly, the case was selected for limited scrutiny to examine the agricultural income , but the Ld.Pr.CIT has initiated the proceedings regarding 14A also which is not permissible under law. Therefore, we set aside the order passed by the Ld.Pr.CIT and allow the appeal of the assessee. 9. In the result, the appeal of the assessee is allowed. 8 ITA No.189/Viz/2021, A.Y.2015-16 Kosana Ramakoteswara Rao, Guntur Order pronounced in the open court on 13 th October, 2022. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयकसदस्य/JUDICIAL MEMBER Dated : 13.10.2022 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– Kosana Rama Koteswara Rao, C/oKatrapati & Associates, 1-1-298/2/B/3, 1 st Floor, Ashok Nagar, Hyderabad 2. रधजस्व/The Revenue – Asst. Commissioner of Income Tax, Circle-2(1) Guntur 3. प्रधान आयकर आयुक्त /The Principal Commissioner of Income Tax, Guntur 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 5.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam