ACN Infotech India Private Limited, Visakhapatanam V. ACIT Circle-1(1), Visakhapatanam

ITA 94/VIZ/2022

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The case involves ACN Infotech India Private Limited, which appealed against the order of the Principal Commissioner of Income Tax, Visakhapatnam-1. The dispute centered on the disallowance of a deduction claimed under section 10AA of the Income Tax Act, 1961, related to rental income. The PCIT had initially directed the Assessing Officer to disallow the deduction, viewing it as an excess claim. The assessee argued that the rental income was incidental to its business and thus eligible for the deduction. The Tribunal found that the assessee was not given a fair opportunity to present its case and remitted the matter back to the PCIT.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 135935 (ITAT-VISAKHAPATNAM)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 15-11-2022
• Assessment Year: misc
• Appeal Filed On: 01-07-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard
• Section: 263; 143(3); 10AA

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.94/Viz/2022 (ननधधारण वर्ा / Assessment Year : 2017-18) ACN Infotech India Private Limited 3A, Balajis Mangalagiri Chambers Siripuram Visakhapatnam [PAN : AAFCA7810A] Vs. Asst.Commissioner of Income Tax Circle-1(1) Visakhapatnam अपीलधथी की ओर से/ Appellant by : Shri G.V.N.Hari, AR प्रत्यधथी की ओर से / Respondent by : Shri M.N.Murthy Naik, CIT(DR) सुनवधई की तधरीख / Date of Hearing : 16.11.2022 घोर्णध की तधरीख/Date of Pronouncement : 01.12.2022 O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax [in short, [PCIT], Visakhapatnam-1 in DIN & Order No.ITBA/REV/F/REV5/2021-22/1041357087(1) dated 23.03.2022 for the Assessment Year (A.Y.) 2017-18. 2. Brief facts of the case are that the assessee is a company, engaged in the business of software development, filed its return of income for the A.Y.2017-18 on 29.07.2017, admitting a total income of Rs.67,95,320/- 2 ITA No.94/Viz/2022, A.Y.2017-18 ACN Infotech India Private Ltd., Visakhapatnam under the heads ‘income from business’ and income from other sources’. The case was selected for limited scrutiny under CASS to verify the expenses incurred for earning exempt income and income from house property. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) on 28.11.2019, accepting the income returned by the assessee. Under the powers vested with the Ld.PCIT, as per the provisions of section 263 of the Act, the assessment records were called for and examined. The Ld.PCIT observed that the assessee company claimed a deduction of Rs.15,97,233/- u/s 10AA of the Act, stating that it being 50% of the profit earned of Rs.31,94,466/- from the export services, reported under the head ‘income from business’. However, it is noticed from the assessment record, that the assessee had included rental income of Rs.15,27,779/- in the business income reported of Rs.31,94,466/- from the export services and claimed deduction of 50% thereon u/s 10AA of the Act. Hence, viewed that the assessee company made an excess claim of deduction of Rs.7,63,890/- being 50% of the rental income received of Rs.15,27,779/- which needs to be disallowed. Accordingly, held that the rental income in the case of the assessee company is not a profit or gain derived from the core activity of the assessee company, hence does not qualify for the exemption as per the provisions of section 10AA of the Act 3 ITA No.94/Viz/2022, A.Y.2017-18 ACN Infotech India Private Ltd., Visakhapatnam on the rental income. Accordingly held that the assessment completed u/s 143(3) of the Act dated 28.11.2019 for the A.Y.2017-18 is not only erroneous but also prejudicial to the interest of revenue. The Ld.PCIT, therefore, directed the AO to recompute the assessee’s income for the A.Y.2017-18 by disallowing the assessee’s claim of Rs.7,63,890/- u/s 10AA of the Act in respect of the reported rental income of Rs.15,27,779/-. 3. Aggrieved by the order of the Ld.PCIT, the assessee preferred appeal before the Tribunal and raised the following grounds : 1) The impugned order passed u/s 263 of the I.T.Act dated 23.03.2022 by the Principal Commissioner of Income Tax, Visakhapatnam-1,, is unjust and uncalled for . 2) The Learned Principal Commissioner of Income tax ought to have accepted the explanation and contentions submitted by the appellant company in response to the notice issued by him in a positive manner and judiciously, in the interests of justice. 3) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the rental income earned by the appellant company was incidental to its business and hence was eligible for deduction u/s 10AA of the Income Tax Act for the Asst.Year 2017-18. 4) The Learned Principal Commissioner of Income Tax ought to have appreciated the fact that the appellant company rightly claimed deduction of Rs.7,63,890/- u/s 1AA of the I.T.Act out of its Gross Rental Income of Rs.15,27,779/- for the Asst.Year 2017-18 as the said rental income was very much incidental to the business of the appellant company. 5) The Learned Principal Commissioner of Income tax ought to have allowed the statutory deduction as per the provisions of Sec.23 and 24 of the I.T.Act. (Income from House Property) if such rental income is treated (without conceding the claims and contentions of the appellant company raised in this regard), as not incidental to the business or the appellant company, to meet the ends of the justice. 4 ITA No.94/Viz/2022, A.Y.2017-18 ACN Infotech India Private Ltd., Visakhapatnam 6) The Learned Principal Commissioner of Income tax ought to have appreciated the fact that even otherwise i.e., if the contention of the Learned Principal Commissioner of Income tax Is accepted (without conceding the claims and contentions of the appellant company raised in this regard) that the impugned Income of Rs.15,27,779/- was rental Income and not incidental to the appellant company's business Income, then he ought to have allowed the statutory deductions as per the provisions of sec.23 and 24 of the I.T.Act by treating the impugned rental income as Income from house property, in the interests of justice. 7) The Learned Principal Commissioner of Income tax erred in treating the impugned rental income of Rs.15,27,779/-, if not accepted the contentions of the appellant company raised in this regard, as business Income as against the correct head of the Income of Income from House Property', in the interests of justice. 8) The Learned Principal Commissioner of Income tax ought to have set aside the impugned assessment nor doing denovo assessment to consider. and examine the veracity of the claims and contentions of the appellant company raised in this regard, as against his impugned order directing the assessing officer to disallow the exemption .on an income of Rs7,63,890/- Ws.10A4 of the I.T.Act out of the Gross Rental Income of Rs.15,27,779/- for the Asst.Year 2017-18, in the interests of justice. 4. Ground No.1 and 2 are general in nature which does not require specific adjudication. 5. Ground Nos.3 to 8 are related to disallowance of exemption on an income of Rs.7,63,890/- u/s 10AA of the I.T.Act out of the Gross Rental Income of Rs.15,27,779/- for the A.Y.2017-18. 6. The Ld.AR submitted that the assessee was issued show cause notices dated 5.03.2022 and 10.03.2022 and it was asked to file its explanation on the issues proposed for revision. The Ld.AR further submitted that the assessee could not appear before the Ld.PCIT due to unavoidable circumstances but the Ld.PCIT directed the AO to disallow the deduction claimed and add back to the income of the assessee company, 5 ITA No.94/Viz/2022, A.Y.2017-18 ACN Infotech India Private Ltd., Visakhapatnam which is against to principles of natural justice. Hence, prayed that the assessee may be given one more opportunity of being heard before the Ld.PCIT to furnish it’s explanation. 7. Per contra, the Ld.DR objected for giving one more opportunity of being heard to the assessee, as the assessee was given sufficient opportunities, therefore, pleaded to uphold the order passed by the Ld.PCIT and dismiss the appeal of the assessee. 8. We have heard both the parties and perused the material placed on record. It was the submission of the assessee that the Ld.PCIT passed the order without giving any opportunity to the assessee. It was further submission of the assessee that on 05.03.2022, the assessee was issued show cause notice, but due to unavoidable circumstances, the assessee was not in a position to appear before the Ld.PCIT and it pleaded for one more opportunity. The contention of the revenue is that the assessee was given sufficient opportunities, but it did not appear before the Ld.PCIT. Therefore, pleaded to uphold the order of the Ld.PCIT. Considering the facts and circumstances of the case and in order to meet the principles of natural justice, we are of the view that it is a fit case to grant one more opportunity of being heard to the assessee. Hence, we direct the Ld.PCIT to pass order after giving opportunity of being heard to the assessee and the 6 ITA No.94/Viz/2022, A.Y.2017-18 ACN Infotech India Private Ltd., Visakhapatnam assessee is also directed to cooperate with the Ld.PCIT and furnish all the details asked by the Ld.PCIT. Therefore, we set aside the order passed by the Ld.PCIT and remit the matter back to the file of the Ld.PCIT. Accordingly, the appeal of the assessee is allowed for statistical purpose. 9. In the result, the appeal of the assessee is allowed for statistical purpose. Order pronounced in the open court on 1 st December, 2022. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयकसदस्य/JUDICIAL MEMBER Dated : 01.12.2022 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– ACN Infotech India Private Limited, 3A, Balajis Mangalagiri Chambers, Siripuram, Visakhapatnam 2. रधजस्व/The Revenue – Asst.Commissioner of Income Tax, Circle-1(1), Visakhapatnam 3. प्रधान आयकर आयुक्त /The Principal Commissioner of Income Tax, Visakhapatnam-1 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम/ DR,ITAT, Visakhapatnam 5.गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam