SR TRUST, MADURAI V. PCIT(CENTRAL), CHENNAI

ITA 213/CHNY/2022

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 8947 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-08-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 05-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation; Charitable institution; Period of limitation; Time period of passing order; Revenue expenditure; Set aside
• Section: 263; 143(3)

Judgement Text

आयकर अपील सं./ITA No.213/Chny/2022 िनधा रण वष /Assessment Year: 2017-18 M/s.S.R.Trust, Lake Area, Melur Road, Madurai-625 107. v. The Principal Commissioner- of Income Tax (Central), Chennai-2. [PAN: AACTS 0376 F] (अपीलाथ /Appellant) ( यथ /Respondent) अपीलाथ क ओर से/ Appellant by : Mr.B.Ramakrishnan, CA यथ क ओर से /Respondent by : Mr. AR.V.Sreenivasan, Addl.CIT सुनवाई क तारीख/Date of Hearing : 25.08.2022 घोषणा क तारीख /Date of Pronouncement : 04.11.2022 आदेश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax (Central), Chennai-2, dated 18.03.2022, passed u/s.263 of the Income Tax Act, 1961, and pertains to assessment year 2017-18. 2. The assessee has raised the following grounds of appeal: 1. For that the order of the Learned Principal Commissioner of Income Tax (Central) - 2, Chennai u/s.263 of the Income Tax Act, 1961 is opposed to law, facts and ircumstances of the case. 2. For that the Learned Principal Commissioner of Income Tax (Central) -2, Chennai is. not justified in invoking the provisions of section 263 of the Act, when the impugned Assessment made under section 143(3) of the Act is not 'erroneous and prejudicial to the interest of the revenue' and thereby erred in setting aside the Order passed by the Assessing Officer u/s.143(3) of the Act dated 31.12.2019. आयकर अपीलीय अिधकरण, ‘ए’ यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI ी वी. दुगा राव, माननीय ाियक सद एवं ी जी. मंजूनाथा, माननीय लेखा सद के सम BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER ITA No.213/Chny/2022 M/s.S.R.Trust :: 2 :: 3. For that the Learned Principal Commissioner of Income Tax (Central) - 2, Chennai has failed to appreciate the fact that expenses referred to in the Show Cause Notice were not incurred during the subject A Y and thus the very basis for issuing a direction to the Assessing Officer for verification of these expenses fails. 4. For that the Learned Principal Commissioner of Income Tax (Central) - 2, Chennai has set aside the assessment with a direction to examine the issues raised in the Show Cause Notice u/s 263 of the Act, thereby the PCIT is not justified in invoking his jurisdiction u/s 263 of the Act. Prayer: For these grounds and such other grounds that may be adduced before or during the. hearing of the appeal, it is most humbly and respectfully prayed that the Hon'ble Tribunal may be pleased to quash the order of PCIT dated 18.03.2022 u/s 263 of the Act or provide such other relief as this Hon'ble Tribunal may deem fit. 3. The brief facts of the case are that the assessee, M/s.S.R.Trust is a public charitable trust registered u/s.12AA of the Act, is running a hospital in the name of Meenakshi Mission Hospital and Research Centre, in Madurai. A search action u/s.132 of the Act was carried out in the chamber of Dr.S.Gurushankar in Meenakshi Mission Hospital, Madurai. The assessee had filed return of income for the AY 2017-18 on 11.10.2017 admitting ‘nil’ total income. The assessment has been completed u/s.143(3) on 31.12.2019 and determined total income of Rs.1,75,14,608/- by making additions towards cash deposits during demonetization period amounting to Rs.1,75,14,608/-. 4. The case has been, subsequently, taken up for revision proceedings u/s.263 of the Act, and accordingly, show cause notice dated 15.02.2022 was served on the assessee. In the said show cause notice, the PCIT has taken up the issue of payment made to M/s.Sun Med Health Care Pvt. Ltd., and purchase of medical equipments from said party on the ground that the assessee could not furnish necessary evidences including details of ITA No.213/Chny/2022 M/s.S.R.Trust :: 3 :: equipments procured from the parties. The PCIT had also questioned depreciation claimed on additional construction under the head ‘building’ and observed that although, the assessee claims to have been made payment of Rs.4,02,90,104/- for repairs and renewals of building, but no proper evidence was filed to justify the claim. The PCIT had also taken up the issue of depreciation on building under construction and observed that no details like copy of estimate, approval obtained from local authority for construction, bills and vouchers relating to construction expenses, were furnished. Likewise, the PCIT had also questioned certain creditors appeared in the balance sheet in the name of parties and observed that, no evidence has been filed including confirmation from the parties to justify creditors shown in the books of accounts. Although, the assessee has not filed necessary details about those issues, the AO has completed assessment order on 28.01.2019 u/s.144 r.w.c.153C of the Act, which rendered the assessment order to be erroneous in so far as it is prejudicial to the interest of the Revenue. Therefore, called upon the assessee to explain, as to why, the assessment order dated 31.12.2019, shall not be revised under provisions of Sec.263 of the Act. 5. In response to show cause notice, the assessee has filed a written submission on the issue, which has been reproduced at Para No.14 at Page Nos.5-12 of the PCIT’s order. The sum and substance of the arguments of the assessee before the PCIT are that the assessment order passed by the AO u/s.144 r.w.s.153C of the Act, is neither erroneous nor prejudicial to ITA No.213/Chny/2022 M/s.S.R.Trust :: 4 :: the interest of the Revenue. Because, all four issues questioned by yourself had been thoroughly examined by the AO during the course of assessment proceedings, where the assessee has furnished complete details about payment made to M/s.Sun Med Health Care Pvt. Ltd., and procurement of medical equipments from the parties. The assessee had also furnished copies of bills along with VAT returns filed for the relevant month to prove that purchases from said parties are genuine in nature. The assessee had also filed details about additions to building construction and depreciation claimed on said building and the AO has considered all evidences filed by the assessee and accepted depreciation claimed on building. Likewise, the assessee has furnished details of depreciation on building under construction and also name and address of creditors appears in the books of accounts. The AO after considering relevant submissions has rightly completed assessment without making any additions on those issues, which find place in your show cause notice. Therefore, merely for the reason that there is no specific discussion on those issues in the assessment order, it cannot be said that the AO has not considered the issues and applied his mind in right perspective of law and thus, claimed that invocation of jurisdiction u/s.263 of the Act, is incorrect. 6. The PCIT after considering relevant submissions of the assessee and also by relying upon the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT reported in [2000] 243 ITR 83 (SC), held that failure on the part of the AO to apply his mind during the course ITA No.213/Chny/2022 M/s.S.R.Trust :: 5 :: of assessment proceedings, is sufficient ground for invoking sec.263 of the Act, as the order in such case is erroneous in so far as it is prejudicial to the interest of the Revenue and thus, rejected objection filed by the assessee and set aside the assessment order with a direction to the AO to examine the issue in light of explanation and pass order as per law. Aggrieved by the order of the PCIT, the assessee is in appeal before us. 7. The Ld.AR for the assessee submitted that the PCIT is erred in assuming jurisdiction u/s.263 of the Act, and set aside the assessment order without appreciating the fact that in order to exercise his powers conferred u/s.263 of the Act, the PCIT should explain ‘how and why’ the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. The Ld.Counsel for the assessee referring to plethora of judicial precedents, including the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., (supra) submitted that prejudicial to the interest of the Revenue u/s.263 of the Act, has to be read in conjunction with the expression erroneous order passed by the AO. In this case, the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, assumption of jurisdiction by the PCIT to set aside the assessment order is illegal and incorrect. The Ld.Counsel for the assessee had also argued the issues questioned by the PCIT on merits and submitted that the assessee has filed complete details about payment made to M/s.Sun Med Health Care Pvt. Ltd., along with ledger copy, copy of invoices, payment details and VAT ITA No.213/Chny/2022 M/s.S.R.Trust :: 6 :: returns of the above company. The assessee had also furnished details of improvement to building and payment made to M/s.VSK Constructions, for renovation work done by them. The assessee had also filed details about depreciation claim on building under construction and filed necessary details. As regards to Issue No.4 of the show cause notice dated 15.02.2022, the assessee has filed name and address of the creditors and confirmation letters including purpose of said creditors was also explained. The AO after examining the issue has chosen not to make any additions on those issues. Therefore, invocation of revisional powers on said issue is incorrect. 8. The Ld.DR, on the other hand, referring to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) submitted that although, the Counsel for the assessee has heavily relied upon the decision of the Hon’ble Supreme Court in the above case, but fact remains that said decision goes in favour of the Revenue, because, it has clearly laid down a ratio on the powers of the PCIT u/s.263 of the Act, and as per which, if the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, the PCIT is well within his powers to set aside the assessment order with a direction to re-do the assessment. If you go through the assessment order passed by the AO u/s.144 r.w.s.153C of the Act, the assessment order is completely silent on four issues taken up by the PCIT in revisional proceedings. Therefore, there ITA No.213/Chny/2022 M/s.S.R.Trust :: 7 :: is no error in the reasons given by the PCIT to set aside the assessment order and their orders should be upheld. 9. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provisions of Sec.263 of the Act, conferred suo moto revisional powers to the PCIT, if the PCIT satisfies that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. In order to assume jurisdiction u/s.263 of the Act, twin conditions must be satisfied viz., (i) the order of the AO must be erroneous and (ii) further, it should be prejudicial to the interest of the Revenue. Unless, twin conditions embedded therein, are satisfied, the PCIT cannot revise the assessment order u/s.263 of the Act. In this case, the PCIT has revised the assessment order on four issues right from payment made to M/s.Sun Med Health Care Pvt. Ltd., and purchases of medical equipments from them, depreciation on improvement to building, depreciation on building under construction and creditors appear in books of accounts of the assessee. The PCIT has discussed each and every issue in his show cause notice and observed that the AO has not carried out required enquiries, he ought to have been carried out in terms of Explanation (2) to sec.263 of the Act, inserted by the Finance Act, 2012 w.e.f. AY 2013-14. According to the PCIT, although, the assessee has not furnished complete details about those issues, the AO has completed u/s.144 r.w.s.153C of the Act, at the fag end of limitation period, which means, the AO has not carried out necessary enquiries on those issues. ITA No.213/Chny/2022 M/s.S.R.Trust :: 8 :: The PCIT had also taken support from the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) while arriving at conclusion that the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. 10. In this factual and legal back ground, if we examine the facts of the present case, we find that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue, for the simple reason that all four issues finding place in the show cause notice of the PCIT, are emanating from the balance sheet and financial statement filed by the assessee for the relevant assessment year. Further, the PCIT has questioned payment made to M/s.Sun Med Health Care Pvt. Ltd., and procurement of medical equipments from the parties. We find that said issue is emanating from the financial statement filed by the assessee and during the course of assessment proceedings which is a primary document placed before the AO and the AO has considered financial statement of the assessee and has chosen not to make any additions on this issue, which means, the assessee has furnished complete details on the issue and the AO has examined the case in right perspective of law. As regards depreciation on improvement to building, the only objection of the PCIT is that no proper evidence was filed, otherwise, the PCIT did not make any observations with regard to ‘how and why’ depreciation claimed on improvement to building is incorrect. The PCIT has also simply set aside the assessment order for further verification without any observations as ITA No.213/Chny/2022 M/s.S.R.Trust :: 9 :: to how depreciation on building under construction, is not in accordance with law. Further, the PCIT has also not observed anything about creditors appear in books of accounts to direct the AO to bring said creditors within the provisions of Sec.68 of the Act. If you go through the order of the PCIT u/s.263 of the Act, dated 18.03.2022, it is very very cryptic and brief. The PCIT has simply by relying upon the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) held that failure on the part of the AO to apply his mind during the course of assessment proceedings, is sufficient ground for invoking sec.263 of the Act, and the order in such case is erroneous in so far as it is prejudicial to the interest of the Revenue. In our considered view, the PCIT is grossly erred in setting aside the assessment order with one-line cryptic observation that the AO has not applied his mind on four issues without bringing on record, how the Revenue is prejudiced from those issues. Further, in the show cause notice also the PCIT has failed to give any plausible reasons ‘as to how’ the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. From the above, it is clear that the PCIT has simply assumed jurisdiction and set aside the assessment order without satisfying himself about erroneous order passed by the AO, which caused prejudicial to the interest of the Revenue on four issues. 11. It is a well settled principle of law by the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra), where it has been held that the phrase ‘prejudicial to the interest of the Revenue ITA No.213/Chny/2022 M/s.S.R.Trust :: 10 :: u/s.263 of the Act’, has to be read in conjunction with the expression erroneous order of the AO. Further the Courts observed that every loss of Revenue as a consequent of an order of the AO, cannot be treated as prejudicial to the interest of the Revenue. At this juncture, it is relevant to discuss various case laws relied upon by the Ld.Counsel for the assessee, on provisions of Sec.263 of the Act: • The Hon'ble Apex Court in the case of CIT Vs. Max India Ltd.(295 ITR 282) has held that when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT did not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. The Madras High Court followed the above decision of the Supreme Court in the case of CIT Vs. Tamilnadu Warehousing Corpn. (292 ITR 310). • The Punjab and Haryana High Court followed the above decision of Supreme Court in the case of CIT Vs. Nahar Exports Ltd. (173 Taxman 3 P & H). • The jurisdictional Madras High Court in the case of CIT Vs. Mepco Industries Ltd. (294 ITR 121) has held that the order to be revised under section 263 should not only be erroneous but also prejudicial to the interest of revenue. It held that where two views are possible order cannot be termed as erroneous. The powers under section 263 cannot be exercised merely because a different view is possible - SC dismissed the SLP against 259 ITR 502 CIT Vs. Arvind Jewellery (266 ITR 101) St. • In the case of CIT vs. Bharat Aluminum Co. Ltd. (303 ITR 256), the Hon'ble High 'Court of Delhi has held that for revision under section 263, the Commissioner of Income-tax has to be satisfied of two conditions viz. (i) the order of the AO sought to be revised is erroneous and (ii) It is prejudicial to the interest of Revenue. If one of them is absent, he cannot invoke the provisions of section 263. • Hon'ble Delhi High Court in the case of Commissioner of Income-tax v. Sunbeam Auto Ltd [2010] 189 Taxman 436 (Delhi) where in it was held that "The submission of the revenue was that while passing the assessment order, the Assessing Officer did not consider the aspect specifically whether the expenditure in question was revenue or capital expenditure. That argument predicated on the assessment order, which apparently did not give any reason while allowing the entire expenditure as revenue expenditure. However, that, by itself, would not be indicative of the fact that the Assessing Officer had not applied his mind to the issue. There are judgments galore laying dawn the principle that the Assessing Officer in the assessment order is not required to give detailed reasons 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. 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 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". 12. In this case, on perusal of facts available on record, we find that four issues questioned by the PCIT in their show cause notice issued u/s.263 of ITA No.213/Chny/2022 M/s.S.R.Trust :: 11 :: the Act, has been thoroughly examined by the AO during the course of assessment proceedings, which is evident from notice issued by the AO and reply furnished by the assessee. Even during revision proceedings, the PCIT did not specify’ how and why’ the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. Further, if you go by the observations of the PCIT, it is abundantly clear that the PCIT has set aside the assessment order for further verification which in our considered view is not permissible u/s.263 of the Act, even after insertion of Explanation (2) to sec. u/s.263 of the Act. Therefore, considering the facts and circumstances of the case and also by following the ratio laid down by various case laws discussed hereinabove, we are of the considered view that the assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue and thus, we quashed the order passed by the PCIT u/s.263 of the Act. 13. In the result, appeal filed by the assessee is allowed. Order pronounced on the 04 th day of November, 2022, in Chennai. Sd/- (वी. दुगा राव) (V. DURGA RAO) याियक सद य/JUDICIAL MEMBER Sd/- (जी. मंजूनाथा) (G. MANJUNATHA) लेखा सद य/ACCOUNTANT MEMBER ITA No.213/Chny/2022 M/s.S.R.Trust :: 12 :: चे ई/Chennai, दनांक/Dated: 04 th November, 2022. TLN आदेश क ितिलिप अ ेिषत/Copy to: 1. अपीलाथ /Appellant 4. आयकर आयु"/CIT 2. यथ /Respondent 5. िवभागीय ितिनिध/DR 3. आयकर आयु" (अपील)/CIT(A) 6. गाड फाईल/GF