T.RAJARAJESWARI, KOVILPATTI V. PCIT , BIBIKULAM

ITA 518/CHNY/2022

AI Insights

The case involves Mrs. T. Rajarajeswari, who appealed against the invocation of revisional jurisdiction under section 263 of the Income Tax Act by the Principal Commissioner of Income Tax, Madurai-1. The revisional authority found the original assessment order erroneous as it did not properly examine several issues including excessive salary payments, disallowance of interest, cash deposits during demonetization, audit fees, and bonuses. The Tribunal found that while most issues were adequately addressed in the original assessment, the issues concerning large cash deposits and interest disallowance were not sufficiently examined, leading to the modification of the revisional order to focus on these aspects.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133833 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 13-06-2022
• Other Referred Cases: CIT vs Ralson Industries Ltd. (158 Taxman 160)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHRIK.BALASUBRAMANIAN LD
• Keywords: TDS
• Section: 263; 154; 143(3); 142(1); 40(a)(ia); 192

Judgement Text

आयकर अपीलीय अिधकरण ‘ए’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा12 एवं माननीय +ी मनोज कु मार अ6वाल ,लेखा सद9 के सम2। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ITA No.518/Chn y/2022 (िनधाBरणवषB / Assessment Year: 2017-18) Mrs. T.Rajarajeswari 204, 1 st Street, Thirumangai Nagar, Kovilpatti-628 501. बनाम / V s . ACIT Circle-1, Tuticorin. था यीले खासं. /जी आ इआ र सं. /P AN / G I R No. AG Q P R - 857 3-B (अ पीलाथ%/Appellant) : (&'थ% / Respondent) अपीलाथ%कीओरसे/ Appellant by : ShriK.Balasubramanian(Advocate)-Ld. AR &'थ%कीओरसे/Respondent by : Shri R. Mohan Reddy (CIT) –Ld.DR सुनवाईकीतारीख/Date of Hearing : 26-04-2023 घोषणाकीतारीख /Date of Pronouncement : 17-05-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 assail invocation of revisional jurisdiction u/s.263 as exercised by Ld. Pr. Commissioner of Income Tax (Pr.CIT), Madurai-1 on 24.03.2022 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s.143(3) of the Act on 09-12-2019. The grounds taken by the assessee read as under: 1.Learned Pr.CIT erred in passing an order under section 263 of the Act on 24/3/2022 holding that the order dated 09/12/2019 passed by the Assessing Officer u/s143(3) of Act is erroneous since the same has been passed without properly examining 4issues viz., (i) salary to Manager&Asst.Manager; (ii) ITA No.518/Chny/2022 - 2 - disallowance of interest to others (iii) Cash deposit during demonetization period (iv) Audit fees and (v) bonus to staff and customers. 1.2 Learned Pr.CIT erred in invoking provisions of Sec.263 disregarding the pendency of notice already issued by the learned Assessing Officer under Section 154 of the Act on 10-4-2021on theabove very same 5 issues [status of which is still 'open'].Since there is absolutely no material difference on issues sought to be considered under these notices, SCN issued under section 263 lacked very basis for assumption of jurisdiction by Pr.CIT. 1.3The only CASS reason being: cash deposit during demonetization period, Learned Pr.CITfailed to note that AO cannot travel beyond the mandate of verifying such cash deposit only and in the absence of any approval by Pr.CIT to look into other- issues also, he erred in holding that the impugned order is erroneous and prejudicial to the interest of revenue. WITHOUT PREJUDICE: 2.1 Learned Pr.CIT failed to note that appellant, during the course of asst. proceedings, on 22/11/19 &8/12/2019, had already filed all details in respect of the above 5 issues and hence the impugned order is not erroneous and prejudicial to the interests of Revenue 2.2 Learned Pr.CIT erred in holding that the amount deposited in SBN [specified bank notes] is not a legal tender because the same is against Sections. 5 &2(1)(a)of The Specified Bank notes (Cessation of Liabilities) Act 2017 and RBI's Press Release permitting tendering of SBNs upto 31/12/2016 and obtaining value thereof by credit into respective bank accounts. The assessee has filed additional grounds on 07.02.2023. The Ld. AR submitted that the assessee is urging only ground no.3 of additional grounds which read as under: - 3. There being pending parallel proceedings under Sec.154 prior to the issue of SCN dt. 10-1-2022 the order under appeal lacks jurisdiction. 2. The Ld. AR submitted that the rectification application u/s 154 was pending against the assessment order and therefore, the revision of the order was beyond jurisdiction. The Ld. AR also submitted that requisite details qua issues flagged in the revisional order was duly called for by Ld. AO during the course of original proceedings which were supplied by the assessee. Therefore, there was no error in the order and no prejudice could be said to have caused to the revenue. The Ld. CIT-DR, on the other hand, controverted the arguments of Ld. AR and submitted that Ld. AO should have been more cautious and he ITA No.518/Chny/2022 - 3 - failed to verify the issues as flagged in the revisional order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. Proceedings before lower authorities 3.1 The assessee is stated to be running a petrol pump under the name and style of Rajashri fuels. An assessment was framed for the year u/s 143(3) on 09.12.2019. The case was scrutinized to verify cash deposit during demonetization period. The assessee explained that cash deposits were sourced out of sales made in cash. The cash so deposited was utilized to purchase the goods from Bharat Petroleum Corporation Ltd. (BPCL). Accepting the same, Ld. AO framed the assessment. 3.2 Subsequently, Ld. Pr. CIT flagged 4 issues in the revisionary proceedings viz. (i) Salary paid for Rs.11 Lacs and Rs.8 Lacs to Shri V.Jaishankar (Asstt. Manager) and Smt. T.Ramya Devi (Manager) was exorbitant in comparison to salary paid to other employees. The Ld. AO failed to verify the same and also failed to verify the applicability of Sec. 40(a)(ia) of the Act; (ii) The assessee maintained huge cash balance of Rs.20 Lacs at the end of each month as against the fact that it borrowed loans and claimed interest expenditure. The assessee maintained zero balance for 6 months in AY 2015-16. Since the assessee maintained huge cash balance, interest expenditure was to be disallowed. The Ld. AO failed to verify this aspect; (iii) The assessee claimed Audit fees for which Ld. AO failed to examine the TDS compliance u/s 40(a)(ia); (iv) The assessee paid bonus to staff and customers. The bonus paid to customer is not allowable and the ITA No.518/Chny/2022 - 4 - same is required to be disallowed. The Ld. AO failed to verify the same. The Ld. Pr. CIT held that the assessment order was passed without examining the above issues which shows lack of enquiry and non- application of mind by Ld. AO. Accordingly, the assessee was put to show cause notice. 3.3 The assessee assailed the revision and filed a reply which has been extracted in the impugned order. Regarding excessive salary to Asstt. Manager and Manager, it was submitted that both employees were playing vital and managerial role in running the business and to carry out day-to-day operations, The salary was paid based on their skills. The salaries so paid has already been offered to tax by them in their respective tax returns. The assessee submitted that due TDS compliance u/s 192 was made. The assessee filed break up of audit expenses and submitted that the same includes accounting charges and travelling expenses. All the payments were within the limit of Sec.194J and therefore, the TDS provisions would not apply. Regarding bonus to customers, it was submitted that customers were driver and cleaners who were given incentive. The break-up of the expenditure was enclosed. Regarding cash deposits, the assessee merely submitted ‘copies are enclosed’. 3.4 The Ld. Pr. CIT substantially rejected the submission on the ground that Ld. AO failed to verify the applicability of provisions of Sec.40A(2)(a) to salary payments. Regarding cash deposits, it was held that no details of Specified Bank Notes (SBN) were made available. The SBM were not legal tender as per notification of Ministry of Finance. The Ld. AO was directed to examine whether the ITA No.518/Chny/2022 - 5 - assessee was covered under any exception provided in the applicable notifications and examine the allowability of the SBN out of cash deposited by the assessee. The assessee’s submissions qua applicability of Sec.194J to audit fees as well as bonus paid to customers was also not accepted. Finally, the order was held to be erroneous and prejudicial to the interest of the revenue and Ld. AO was directed to pass fresh assessment after making necessary enquiries with respect to these issues in accordance with law after affording opportunity of hearing to the assessee. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. First, we deal with the argument of Ld. AR that pending rectification application u/s 154, revision jurisdiction was ousted. We find that this issue has been addressed by Hon’ble Supreme Court in the case of CIT vs Ralson Industries Ltd. (158 Taxman 160).The facts in that case are quite similar to facts before us. The Hon’ble Supreme Court held that the scope and ambit of a proceeding for rectification of an order under section 154 and a proceeding for revision under section 263 are distinct and different. The order of rectification can be passed on certain contingencies. It does not confer a power of review. If an order of assessment is rectified by Assessing Officer in terms of section 154 of the Act, the same itself may be a subject-matter of a proceeding under section 263 of the Act. The power of revision under section 263 is exercised by a higher authority. It is a special provision. The revisional jurisdiction is vested in the Commissioner. An order thereunder can be passed if it is found that the order of assessment is prejudicial to the Revenue. In such a ITA No.518/Chny/2022 - 6 - proceeding, he may not only pass an appropriate order in exercise of the said jurisdiction but in order to enable him to do it, he may make such inquiry as he deems necessary in this behalf. When an order is passed by a higher authority, the lower authority is bound thereby keeping in view the principles of judicial discipline. An order of assessment is subject to exercise of an order of a revisional jurisdiction under section 263 of the Act. Doctrine of Merger in such a case will have no application. The Hon’ble Court further opined that initiation of a proceeding under Section 263 of the Act cannot be held to have become bad in law only because an order of rectification was passed. No such hard and fast rule could be laid down, in this regard. Each case is required to be considered on its own facts. It would not be correct to contend that only because a proceeding for rectification was initiated subsequently, the revisional jurisdiction could not have been invoked under any circumstances whatsoever. If such a proceeding was initiated, in our opinion, the contesting parties could bring the same to the notice of the Commissioner so as to enable him to take into consideration the subsequent events also. It goes without saying that if and when the Commissioner of Income-tax takes up for consideration a subsequent event, the assessee would be entitled to make its submission also in regard thereto. This decision would have precedence over all the other decisions as cited by Ld. AR. Therefore, we reject this plea raised by Ld. AR. 5. Proceeding further, we find that during the course of original assessment proceeding, a notice u/s 142(1) was issued to the assessee calling for requisite details from the assessee. The same include Copies of Audit Report and financial statements of previous 3 ITA No.518/Chny/2022 - 7 - years. The assessee was also directed to explain the reasons for large cash deposit during demonetization period. Vide another notice dated 29.10.2019, the assessee was directed to file statistical report on cash deposit, This include cash deposit during financial years 2015-16, 2016-17 and details of cash sales as well as analysis of cash sales and cash deposits in those years. The assessee responded to these notices and uploaded certain details on 22-11-2019. The same include audit fees and expenses ledgers, ledger of bonus paid to customer, details of salary paid during the year. Upon perusal of these details, it could be said that the issue of payment of Audit fees, staff salaries and bonus paid to customers was duly examined by Ld. AO and the assessee had furnished all the details as required by Ld. AO. However, the issue of cash deposits as well as issue of interest disallowance has nowhere been examined by Ld. AO. Though a query was raised regarding cash deposit, prima facie, the requisite details were not furnished by the assessee. This being so, no view could be said to be have taken by Ld. AO on these two issues. Considering the same, we modify the revisionary order and direct Ld. AO to remain confined himself to the extent of examining the issues of large cash deposit during demonetization period and the issue of interest disallowance u/s 36(1)(iii). The impugned order stand modified to that extent. 6. The appeal stands partly allowed in terms of our above order. Order pronounced on 17 th May, 2023 Sd/- (MAHAVIR SINGH) उपा12 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद9 /ACCOUNTANT MEMBER ITA No.518/Chny/2022 - 8 - चे8ई/ Chennai; िदनांक/ Dated : 17-05-2023 DS आदेशकीVितिलिपअ6ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant2. यथ /Respondent3. आयकरआय ु त/CIT 4. वभागीय त न ध/DR5. गाड फाईल/GF