Rieter India Pvt. Ltd, Pune V. Additional / Joint / Deputy/ Assistant Commissioner Of Income Tax, Delhi

ITA 209/PUN/2021

AI Insights

The case involves Purnartha Investment Advisers Pvt. Ltd., which appealed against the order of the Principal Commissioner of Income Tax, Pune-2, under section 263 of the Income Tax Act. The appeal was directed against the revision of an assessment order for the assessment year 2015-16, which had been initially passed under section 143(3) of the Act. The Principal Commissioner had deemed the assessment order erroneous and prejudicial to the interest of the Revenue, primarily due to inadequate inquiry into the deduction claimed for deferred revenue expenditure. The Tribunal examined whether the Assessing Officer had indeed conducted sufficient inquiries and whether the revision under section 263 was justified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134306 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-05-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 26-05-2021
• Other Referred Cases: Malabar Industrial Co Ltd vs CIT, CIT vs Gabriel India Ltd, GKN Sinter Metals Ltd vs ACIT, Idea Cellular Ltd vs DCIT, Marico Ltd vs ACIT, CIT vs Nirav Modi, State Bank of India vs PCIT, Lakme Lever Private Limited vs CIT, PCIT vs Shreeii Prints Pvt Ltd, Narayan Tat Rane vs CIT, Ajanta Infrastructure Limited vs CIT, Shri Sai Infrastructure & Developers vs PCIT, Taparia Tools vs JCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Question of law; Revenue expenditure; Rule 8D; Set aside
• Section: 263; 143(3); 14A; 48; 119

Judgement Text

आयकर अपीलीय अिधकरण “बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.209/PUN/2021 िनधाᭅरण वषᭅ / Assessment Year : 2015-16 Purnartha Investment Advisers Pvt. Ltd., 796/189, B Construction House, Bhandarkar Institute Road, Deccan Gymkhana, Pune – 411004. PAN: AAECC 3706 G V s The Pr.CIT-2, Pune. Appellant/ Assessee Respondent / Revenue Assessee by Shri Abhilash Hiran – AR Revenue by Shri Sardar Singh Meena – DR Date of hearing 23/02/2023 Date of pronouncement 02/03/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Principal Commissioner of Income Tax, Pune-2 under section 263 of the Act, dated 17.03.2021 emanating from the assessment order dated 30.06.2017 under section 143(3) of the I.T.Act, 1961 for the A.Y.2015-16. The Assessee has raised the following grounds of appeal: “Based on the facts and in the circumstances of the case Purnartha Investment Advisers Pvt Ltd (hereinafter referred to as 'the Appellant') respectfully craves leave to prefer an appeal under ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 2 section 253(1 )(c) of the Act against the order dated 17 March 2021 passed by the Chief Commissioner of Income-Tax, Pune (hereinafter referred to as 'the learned CIT') under section 263 of the Act on the following grounds which are independent and without prejudice to each other. On the facts and circumstances of the case and in law, the learned CIT has: Grounds challenging the validity of revision proceedings Ground 1: Erred in invoking the revision proceedings under section 263 of the Act without appreciating the fact that the Assessing Officer had already dealt with the issue on merits and hence, the assessment order cannot be regarded as 'erroneous' and “prejudicial to the interest of the revenue” for the purpose of initiating the proceedings under the said section. Ground 2: Erred in concluding that the learned AO has not made any inquiry and passed the order in routine and cursory manner overlooking the fact that the case was selected through CASS to verify deductions claimed in Schedule BP of the return of income. Grounds challenging the merits of the case: Ground 3: Erred in concluding that the appellant has started a new unit and salaries paid to employees are in the nature of preliminary expenses covered under section 35D of the Act. Ground 4: Without prejudice to Ground No 4, even if the expenditure is considered for expansion of a new unit, salaries paid to employees is not covered under section 35D of the Act. Ground 5: Without prejudice to the above grounds, the learned CIT erred in overlooking the fact that the appellant has disallowed the expenditure in subsequent assessment years i.e., AY 2016-17 and AY 2017-18 which were debited in the books of accounts. ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 3 Ground 6: Erred in overlooking that there is no concept of deferred revenue expenditure under the Act and expenditure which is not capital in nature can be claimed in the year of incurrence. In view of the above grounds and in the facts and circumstances of the case and in law, the Appellant prays your Honours to set aside order under section 263 of the Act and grant relief to the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law.” Brief facts of the case : 2. The assessee had filed Return of Income electronically on 26.09.2015 declaring total loss of Rs.20,70,653/- for A.Y.2015-16. The case was selected for limited scrutiny to verify the large any other deduction claimed in sch.BP. The Assessing Officer(AO) passed assessment order on 30.06.2017. The ld.Pr.CIT invoked provisions of section 263 of the Act. The reason for which the ld.Pr.CIT invoked provisions of section 263 of the Act is as under: “there is no clarification of the assessee regarding the amount on deferred revenue expenditure of Rs.51,86,320/-, as to why it was not debited in profit & loss account, nor any submission was filed stating that why section 35D clause(ii) should not be made applicable and the reason for expenses not being amortised.” 3. The ld.Pr.CIT held that the assessment order as erroneous and prejudicial to the interest of the Revenue and directed the AO for ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 4 fresh assessment. Aggrieved by the order of the ld.Pr.CIT, the assessee filed appeal before this Tribunal. Authorised Representative’s Submissions : 4. The ld.AR filed a paper book. The ld.AR explained that the assessee had incurred expenditure of Rs.77,79,480/- towards salaries of its marketing person and the said amount has been claimed as expenditure in the Return of Income. However, the company is of the opinion that the expenditure incurred on salary of marketing person was going to provide benefit to the company for two to three years, therefore, in the books of the company 2/3 rd of the expenditure was shown as deferred revenue expenditure, thus, the total expenditure of Rs.77,79,480/- has been claimed in three years 1/3 rd each in the books of the company. However, as per Income Tax Act, there is no provision of such deferment of expenditure incurred towards salary of marketing person, therefore entire salary was claimed as expenditure during the year. 5. The ld.AR further stated that this case was specifically selected under CASS for verification of this expenditure. The AO had asked specific questions vide notice dated 10.02.2017. The ld.AR invited our attention to the notice dated 10.02.2017, question no.9. The ld.AR further submitted that vide order sheet entry dated 20.06.2017 the AO made further queries on this issue. The ld.AR submitted ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 5 copy of the order sheet entry. The ld.AR also took us through the submission made by the assessee in response to these queries during the assessment proceedings. The ld.AR submitted that the entire list of salary was submitted to the AO which was also submitted in the paper book before us. Copy of the ledger account for salary was submitted before the AO. The ld.AR pleaded that since all essential questions were asked by the AO and assessee had filed all the details, the AO after verification of these details was satisfied with the claim of the assessee and therefore the ld.AR submitted that the AO had conducted proper enquiries applied mind to the issue under consideration and arrived at a particular decision. The ld.AR submitted that in these facts and circumstances of the case the ld.Pr.CIT cannot invoke 263 jurisdiction. The ld.AR relied on following case laws : Sr No Case Law Page No 1. Malabar Industrial Co Ltd vs CIT (243 ITR 83) (2000) (SC) 5 2. CIT vs Gabriel India Ltd (203 ITR 108) (1993) (Bom HC) 11 3. GKN Sinter Metals Ltd vs ACIT (114 DTR 121) (Bom HC) 18 4. Idea Cellular Ltd vs DCIT (301 ITR 407) (Bom HC) 32 5. Marico Ltd vs ACIT (425 ITR 177) (2019)-Bom HC 39 6. CIT vs Nirav Modi (390 ITR 292) (2016)-Bom HC 48 7. State Bank of India (WP No 271 & 278 of 2018 order dated 16/06/2018)-Bom HC 57 8. Lakme Lever Private Limited vs CIT (ITA No.2613/Mum/2015) dated 3 Dec 2018 72 9. PCIT vs Shreeii Prints Pvt Ltd (282 Taxman 465) (Guj HC) 79 10. Narayan Tat Rane (ITA no 2690 & 2691/Mum/2016) (Mumbai ITAT) 86 ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 6 11. Ajanta Infrastructure Limited vs CIT (211 DTR 201)-2022- Pune ITAT 101 12. Shri Sai Infrastructure & Developers vs PCIT Tax (ITA No.459/PUN/2016) dated 23 May 2018- Pune ITAT 114 13. Taparia Tools vs JCIT (372 ITR 605) (2015) (SC) 119 6. The ld.DR relied on the order of ld.Pr.CIT. Findings and Discussion : 7. We have heard both the parties and perused the records. The relevant part of the order under section 263 is reproduced here as under: “Adverting to the fact in the instant case, it is amply clear that AO has not made any enquiry on the deduction claimed of Rs.51,86,320/- towards deferred revenue expenditure which is neither debited in Profit and Loss Account, nor applicability of Sec.35D of the I.T.Act has been examined. This lack of investigation and enquiry by the Assessing Officer has made the impugned order erroneous as well as prejudicial to the interest of revenue. In view of the above facts, I am of the considered opinion that the order u/s 143(3) finalized on 30/06/2017 by the Assessing Officer is erroneous and prejudicial to the interest of the revenue and the same is set aside for framing fresh assessments on the issue dealt above and by giving an opportunity of being heard to the assessee. The assessment is to be completed within the stipulated time frame by conducting necessary enquiries. Further, the AO is directed to initiate penalty proceedings as per the Act, wherever applicable.” 8. Thus, the ld.Pr.CIT is of the opinion that the AO had not carried out any enquiry regarding deduction claimed of Rs.51,86,320/- towards deferred revenue expenditure, nor AO has ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 7 verified applicability of section 35D of the Act. It is observed that during the assessment proceedings, the AO had asked specific questions to the assessee regarding the deferred expenditure. The reply submitted by the assessee vide letter dated 10.02.2017 to the AO during the assessment proceedings is reproduced here as under : ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 8 9. Similarly, the AO vide order sheet entry dated 20.06.2017 had asked the assessee to submit details regarding deferred expenditure. The reply submitted by the assessee is as under : ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 9 10. The AO had conducted five hearings which were attended by the ld.AR of the assessee, as seen from the order sheet maintained by the Assessing Officer. 11. Thus, it is observed that the AO had specifically asked the assessee regarding deferred expenditure. The AO after verifying the submission of the assessee arrived at a conclusion that assessee’s claim was allowable, therefore, we are of the opinion that this is not the case where AO had not carried out proper enquiry. 11.1 The relevant section 35D has applicable for A.Y. 2015-16 is reproduced as under: “35D. (1) Where an assessee, being an Indian company or a person (other than a company) who is resident in India, incurs, after the 31st day of March, 1970, any expenditure specified in sub-section (2),— (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one- tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the undertaking is completed or the new unit commences production or operation : ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 10 Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in sub-section (2), the provisions of this sub-section shall have effect as if for the words "an amount equal to one-tenth of such expenditure for each of the ten successive previous years", the words "an amount equal to one-fifth of such expenditure for each of the five successive previous years" had been substituted. (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :— (a) expenditure in connection with— (i) preparation of feasibility report; (ii) preparation of project report; (iii) conducting market survey or any other survey necessary for the business of the assessee; (iv) engineering services relating to the business of the assessee : Provided that the work in connection with the preparation of the feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services referred to in this clause is carried out by the assessee himself or by a concern which is for the time being approved in this behalf by the Board; (b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business of the assessee; (c) where the assessee is a company, also expenditure— ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 11 (i) by way of legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956 (1 of 1956); (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed” 12. In this case, it is observed that the expenditure incurred has been on account of salary paid to the marketing personnel. As per provisions of the Act, salary is an allowable expenditure on accrual basis. The ld.Pr.CIT has not denied this fact that the expenditure was salary paid to the marketing personnel. The assessee has submitted copy of ledger account and list of employee along with amount of salary. We have verified the same. Therefore, in these facts and circumstances, we are of the opinion that the ld.Pr.CIT’s contention that section 35D is applicable is not sustainable in law. ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 12 13. However, since the AO has carried out proper enquiries and arrived at an opinion after considering submission of the assessee and the opinion is legally tenable, we do not find merits in the contention of the ld.Pr.CIT that order is erroneous & prejudicial to the interest of the Revenue. The Hon’ble Bombay High Court in the case of CIT Vs., Future Corporate Resources Ltd., [2022] 284 taxmann 122 (Bom) has held as under : “3. An order under section 143 (3) of the Act had been passed on 23rd March 2014 computing the total income of the assessee for AY 2011-12 at a loss of Rs. 6,56,21,270/-. According to the PCIT in the assessment order it has been recorded that the assessee was holding investment of Rs. 1,15,974.91 lakhs and Rs.1,30,265.91 lakhs at the beginning and at the end of the year, respectively. Income arising from such investment being dividend does not form part of the total income but still the assessee had debited substantial amount as interest in its P & L A/c. In response to the question whether any disallowance was required under section 14A of the Act r. w. Rule 8D, it was explained by respondent during the assessment proceedings (a) that the investment had been made by the assessee in its associate and subsidiary companies as a promoter solely and exclusively for purpose and in course of the business as part of business strategy, (b) the intention was not to earn dividend income but to build long term business prospects and increase the efficiency in each division of the sector, (c) out of the total investment appearing in the balance Rs. 1,30,265.26 lacs approximately 93% i.e. Rs.1,21,686324 lacs had been made in the associate and subsidiary companies and (d) out of the total revenue of the assessee company of Rs. 15,264.23 lacs, revenue from ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 13 associate and subsidiary companies was Rs. 8118.20 lacs, i.e., approximately 53%. 4. According to the PCIT the Assessing Officer failed to make a disallowance of interest under the provisions of section 14A read with rule 8(D)(ii) and therefore order of Assessing Officer was erroneous and prejudicial to the interest of revenue. The PCIT set aside the order of the Assessing Officer with the directions to frame a fresh assessment order. Against this order the respondent preferred an appeal before the Income-tax Appellate Tribunal (ITAT). The ITAT, by an order pronounced on 26th October 2016 set aside the order of the PCIT passed under 0section 263 of the Act. 5. We have heard the counsels and considered the order passed by the PCIT and the order of the tribunal and we see no reason to frame any question of law. 6. Mr. Tejveer Singh in fairness agreed that the law is very clear and inasmuch as if there are two possible views and the Assessing Officer has chosen one of the possible views then there is no reason to exercise power of revision and revisional powers cannot be exercised for directing a full inquiry to find out if that view taken after an inquiry is erroneous. Moreover, the power of revision can only be exercised where no inquiry as required under the law is carried out and even in case of inadequate inquiry by the Assessing Officer, the order of the Assessing Officer could not be reviewed. 7. In the order of PCIT it is stated "in paragraph 4.3 of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 14 interest expense debited by the assessee has not been considered for the calculation of disallowance under section 14A because the same has been incurred for the purpose of business." The PCIT therefore agrees that the Assessing Officer has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. 8. Another point which we noticed from the order of PCIT, which has been noted by the ITAT is that the PCIT has not disputed the nature of the investments being strategic investment made for the purpose and in course of the business of the assessee. The PCIT has only looked at the matter from a different legal view on the same set of facts. It was for these reasons, the ITAT had interfered and held that the order passed by PCIT under section 263 of the Act was not sustainable and accordingly set aside that order. 9. In our view, the Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analyzed and correct test is applied ITA No.209/PUN/2022 Purnarth Investment Advisers Pvt. Ltd., [A] 15 to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law. 10. The appeal is devoid of merits and it is dismissed with no order as to costs.” 14. Respectfully following the Hon’ble jurisdictional High Court, since AO had carried out necessary enquiries, studied the submission of the assessee, and then passed the assessment order, the assessment order cannot be termed as erroneous and prejudicial to the interest of the Revenue, therefore, we set-aside the order under section 263 of the Income Tax Act, accordingly, appeal of the assessee is allowed. 15. In the result, appeal of the Assessee is Allowed. Order pronounced in the open Court on 2 nd March, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 2 nd March, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.