Appeal Dismissed: Tribunal Upholds Assessee’s Position in Section 263 (of Income Tax Act, 1961) Case

Case Name:

PRINCIPAL COMMISSIONER OF INCOME TAX VS BRITANNIA INDUSTRIES LIMITED

Key Takeaways:

1. The appeal by the revenue is directed against the order passed by the Income Tax Appellate Tribunal in relation to the assessment year 2016-2017.
2. The substantial questions of law raised by the revenue for consideration include issues related to the justification of setting aside the order under Section 263 (of Income Tax Act, 1961), invocation of Section 263 (of Income Tax Act, 1961) in case of thorough enquiry by the Assessing Officer, and the interpretation of the provisions of Section 263 (of Income Tax Act, 1961).
3. The assessing officer completed the assessment under Section 143(3) (of Income Tax Act, 1961), and the Principal Commissioner of Income Tax, Calcutta (PCIT) issued a show cause notice under Section 263 (of Income Tax Act, 1961), pointing out specific issues related to deductions claimed by the assessee.
4. The PCIT held the assessment order to be erroneous and directed the assessing officer to pass a fresh assessment order after considering the identified issues. The assessee appealed against this order, and the tribunal allowed the appeal.
5. The tribunal found that the issues raised in the show cause notice were fully factual, and the assessing officer had made due enquiries and verifications before completing the assessment.
6. The tribunal also noted that there was no revenue implication and no prejudice caused to the revenue in one of the issues raised by the PCIT.
7. The High Court found that no substantial questions of law arose for consideration in the appeal and dismissed the appeal.

Case Synopsis:

The case you’ve presented involves an appeal filed by the revenue under Section 260A (of Income Tax Act, 1961), against the order passed by the Income Tax Appellate Tribunal “B” Bench Kolkata in ITA No. 1501/Kol/2021 for the assessment year 2016-2017. The appeal raises substantial questions of law for consideration, which I will address in detail.

Substantial Questions of Law

The revenue has raised the following substantial questions of law for consideration:

1. Whether the Learned Tribunal is justified in setting aside the order under Section 263 (of Income Tax Act, 1961), passed on the ground that the Assessing Officer had already conducted an inquiry on the issues on which the order under Section 263 (of Income Tax Act, 1961) was passed
2. Whether the provisions of Section 263 (of Income Tax Act, 1961) can be invoked in a case where the Assessing Officer, though makes thorough inquiry, ignores to appreciate that deductions claimed by the assessees are not in consonance with the provisions of law
3. Whether the Learned Tribunal erred in law in interpreting the provisions of Section 263 (of Income Tax Act, 1961) and holding that the action of the learned PCIT in the present case is not justifiable and cannot be sustained under the facts and circumstances of the present case?

Facts of the Case

The assessee had filed its return of income for the assessment year 2016-2017, declaring a total income of Rs.1062,44,65,120/-. A revised return was filed later, declaring a total income of Rs. 1054,14,38,420. The case was selected for scrutiny, and notices under Section 143(2) (of Income Tax Act, 1961) and Section 142(1) (of Income Tax Act, 1961) were issued. In response to these notices and queries, the assessee submitted documents. The assessing officer issued a show cause notice pointing out two issues:

1. Discrepancies in the amount debited to the profit and loss account in Schedule 19 of TAR.
2. Advertisement expenditure debited to the profit and loss account, which was a prior period expenditure relating to the financial year 2014-2015.

PCIT’s Position

The Principal Commissioner of Income Tax, Calcutta (PCIT) issued a show cause notice under Section 263 (of Income Tax Act, 1961), proposing to invoke Section 263 (of Income Tax Act, 1961) based on the assessing officer’s failure to verify the above issues.

Assessee’s Response

The assessee responded to the show cause notice, stating that the allegations were factually incorrect. They provided detailed explanations and furnished documents to support their position. They also contended that the assessing officer had made due inquiries on the issues and completed the assessment under Section 143(3) (of Income Tax Act, 1961).

Tribunal’s Decision

The tribunal, as the last fact-finding authority, considered the factual position and granted relief to the assessee. The tribunal found that the assessing officer had issued notices, considered the replies, and conducted a detailed inquiry before completing the assessment. The tribunal also noted that the PCIT had not carried out any inquiry on his own and merely set aside the assessment order, contrary to the law.

Conclusion

Based on the above facts and the tribunal’s decision, the court found that no substantial questions of law arose for consideration in the appeal. Therefore, the appeal was dismissed.

FAQ

Q1: What is the case about?

A1: The case involves an appeal by the revenue against the order passed by the Income Tax Appellate Tribunal in relation to the assessment year 2016-2017.

Q2: What were the substantial questions of law raised by the revenue?

A2: The revenue raised substantial questions of law related to the justification of setting aside the order under Section 263 (of Income Tax Act, 1961), invocation of Section 263 (of Income Tax Act, 1961) in case of thorough enquiry by the Assessing Officer, and the interpretation of the provisions of Section 263 (of Income Tax Act, 1961).

Q3: What was the outcome of the appeal?

A3: The tribunal allowed the appeal filed by the assessee, and the High Court found that no substantial questions of law arose for consideration in the appeal and dismissed the appeal.

1. This appeal by the revenue filed under Section 260A (of Income Tax Act, 1961)(the Act) is directed against the order dated 28.03.2022 passed by

the Income Tax Appellate Tribunal “B” Bench Kolkata in ITA No. 1501/Kol/2021 for the assessment year 2016-2017.

2. The revenue has raised the following substantial questions of law for

consideration:-

(i) Whether the Learned Tribunal is justified in setting aside the order under Section 263 of the Income Tax Act, 1961 passed on the ground that the Assessing Officer had already conducted enquiry on the issues on which the

order under Section 263 (of Income Tax Act, 1961) was passed, when the order of Assessing Officer is erroneous and bases on non application of mind as well as against the provisions of law and when no such embargo has been put in the language of the section that when the Assessing Officer passed the order after conducting enquiry it cannot be reviewed and, the intention of the legislature was never such so as to render the revenue remedies against erroneous orders of the Assessing Officer or to make the revenue

suffer a continuous wrong?

(ii) Whether the provisions of the Section 263 of the Income Tax Act, 1961 can be invoked in case where the Assessing Officer though makes thorough enquiry, ignores to appreciate that deductions claimed by the assessees are not in

consonance with the provisions of law and it is found that the Assessing Officer failed to apply his mind?

(iii) Whether the Learned Tribunal erred in law in interpreting the provisions of Section 263 of the Income Tax Act, 1961 and holding that the action of the learned PCIT in the present case is not justifiable and cannot be

sustained under the facts and circumstances of the present case?

3. We have heard Mr. Amit Sharma, learned standing counsel for the

appellant and Mr. R.K. Muraka, learned senior advocate assisted by Ms

Sutapa Roy Chowdhury, and Mrs. Aratrika Roy, learned advocates for the

respondents.

4. The assessee had filed its return of income for the assessment year

under consideration (A.Y. 2016-2017) on 30.11.2016 declaring a total

income of Rs. 1062,44,65,120/-. Subsequently revised return was filed on

27.03.2018 declaring a total income of Rs. 1054,14,38,420/- and the case

was selected for scrutiny and notices under Section 143(2) (of Income Tax Act, 1961) and Section

142(1) were issued. In response to such notices and the queries which were

raised the assessee submitted documents and on certain discrepancies

which were found the assessing officer issued show cause notice dated

23.12.2018 for which reply was submitted by the assessee on 26.12.2018

after which the assessment was completed by order dated 30.12.2018 under

Section 143(3) (of Income Tax Act, 1961). The Principal Commissioner of Income Tax,

Calcutta (PCIT) issued the show cause notice dated 15.03.2021 under

Section 263 (of Income Tax Act, 1961). Pointing out two issues:-

(i) That in the Schedule 19 of TAR, the assessee debited an amount of

Rs. 21,95,56,764/- to the profit and loss account however the

amount admissible under Section 35 (of Income Tax Act, 1961) is only Rs.

20,61,11,598/- and in the computation of total income excess

debited amount of Rs. 1,34,45,166/- (i.e. Rs. 21,95,56,764 - Rs.

20,61,11,598) has not been added back to the total income.

(ii) That Schedule 27b of TAR reveals that the assessee company

debited an amount of Rs. 9,89,485/- on account of advertisement

to the profit and loss account, the expenditure is a prior period

expenditure relating to the financial year 2014-2015 and as this

expenditure does not relate to the year under consideration the

same deserves to be disallowed.

5. According to the PCIT, the assessing officer failed to verify the above

issues and therefore it was proposed to invoke Section 263 (of Income Tax Act, 1961).

6. With regard to the first query, the assessee in their response dated

24.03.2021 stated that the allegation is factually incorrect. It was stated

that the assessee has suo moto added back Rs. 1,34,45,166/- while

computing the taxable income for the relevant assessment year. The

assessee also furnished break-up of the amount of Rs. 21,95,56,764/-

debited to the profit and loss account as reported in Schedule 19 of the TAR. After giving all the facts and the figures, the assessee stated that it is evident the said sum of Rs. 1,34,45,166/- was added back in the computation of income which proves that the allegations mentioned in the show cause notice is factually erroneous and unsustainable in law. Further the assessee stated that the assessing officer had made due enquiries on the said issue and after being satisfied that the excess sum has been added back to the total income the assessment was completed under Section 143(3) (of Income Tax Act, 1961).

Further it was pointed out that in the notice dated 08.10.2018 issued under

Section 142(1) (of Income Tax Act, 1961) specific details were called for on the said issue

which was furnished by the assessee by the letters dated 20.11.2018 and

03.12.2018. It was further stated that the assessing officer examined the

details of scientific research expenditure as claimed as deduction vis-a-vis

the amount debited to profit and loss account including depreciation debited

in books in relation to scientific research assets. Thereafter, another show

cause notice was issued on 23.12.2018 requiring the assessee to explain as

to why the excess deduction claimed under Section 35(2AB) (of Income Tax Act, 1961)

should not be allowed. For this query the assessee submitted their reply

dated 26.12.2018. It was contended that it is clear that the assessing officer had gone through the tax audit report, financials, income tax return, submissions in response to the notices after which he made further

enquiries inter alia scientific research expenditure before completing the

assessment. Mr. Muraka had placed before us the copy of the income tax

return which also establishes that the amount was suo-moto added back by

the assessee.

7. With regard to the second issue, the assessee pointed out that sum of

Rs. 9.89,485/- pertains to the advertisement expenditure for employment

charged by “LINKED IN” and bank charges therein and the details of the

invoices raised by the “LINKED IN” were furnished. It was stated that

though invoices were raised in the month of June 2014, they being a non-

resident essential documents like copy of TRC, no PE certificate etc. were

provided by them only during the financial year 2015-2016 and hence the

assessee could account and pay for all the bills only during the financial

year 2015-2016. Further the assessee referred to several decisions for the

proposition that expenses pertaining to earlier years, which was quantified

and crystallized during the previous year was allowable deduction.

8. The PCIT after briefly setting out the objections raised by the assessee to the show cause notice issued under Section 263 (of Income Tax Act, 1961) came to the

conclusion that the assessing officer has passed the assessment order

without making enquiries or verification and therefore clause (a) of

explanation (2) to Section 263(1) (of Income Tax Act, 1961) is attracted and accordingly held the assessment order to be erroneous in so far as it is prejudicial to the interest of revenue. After referring to a few decisions the PCIT by order dated 27.03.2021 set aside the assessment order and directed the assessing officer to pass a fresh assessment order after considering the two issues which were pointed out. Aggrieved by such order, the assessee preferred appeal before the tribunal which has been allowed by the impugned order.

9. Firstly, we need to point out that the both the issues on which the show

cause notice under Section 263 (of Income Tax Act, 1961) was issued are fully factual. The

learned tribunal which is the last fact-finding authority has elaborately

considered the factual position and granted relief to the assessee. Unless

and until the order passed by the learned tribunal suffers from any

perversity or ignores any vital fact in an appeal under Section 260A (of Income Tax Act, 1961) of the

Act, we are not expected to interfere in such an order.

10. Nevertheless, since elaborate submissions were made by Mr. Sharma

and Mr. Muraka we embarked upon the fact finding exercise though not

required to be done. The respondent assessee filed a paper book containing

all documents which was filed before the learned tribunal including the

written submissions filed by the assessee. From the annexure, it is seen that under the column amount admissible under Section 35 (of Income Tax Act, 1961), in the sub column

A1 the figure debited to the statement of profit and loss has been shown as

Rs. 219,556,764/- in column A(ii)the amount admissible (net depreciation

and asset written off) Rs. 206, 111,599/- has been mentioned. In column

B(1) (i) the amount not debited to the statement of profit and loss-capital

expenditure has been given as Rs. 218,424,479/- and in column b(2) the

amount admissible is shown as Rs. 210, 494, 435/-. The details of the

scientific research expenditure reported in Schedule 19 of the TAR has been

explained as follows:-

*SR= Scientific Research

*FS=Financial Statements

Items B,C,D & E were debited under the respective Heads viz.,

Depreciation, Assets Written off, Profit/Loss on Sale of Assets.

11. The assessee also furnished the relevant extracts of the financial

statement for the financial year 2015-2016 highlighting all the relevant

details. Further the location wise break up of those items of expenses as

reflected in the profit and loss account were also placed before the learned

tribunal and it was explained that the items set out in the Column

(B)(C)(D)(E) in the above table formed part of the depreciation on scientific research assets; assets written off and profit and loss on sales of asset debited in the profit and loss account. Thus, it was explained that the sum of Rs. 1,34,45,166/- was added back in the computation of income. This aspect of the matter has been analyzed by the learned tribunal and it has found that the said sum was added back in the computation of income and

therefore there was absolutely no basis for the PCIT to invoke his power

under Section 263 (of Income Tax Act, 1961). Furthermore, records clearly show that the

assessing officer had issued notices to the assessee on the very same issue

considered their reply thereafter pointing out certain discrepancies issued

show cause notice for which reply was submitted by the assessee and after

a detailed enquiry the assessment has been completed. Thus, it is not a

case of lack of enquiry or lack of proper enquiry. The PCIT does not in as

many words states that there was lack of enquiry or lack of proper enquiry

and all that is said is that the assessing officer did not verify these aspects which is factually incorrect. Therefore, it is not a case where the PCIT could have invoked his jurisdiction under Section 263 (of Income Tax Act, 1961).

12. With regard to the second issue, the learned tribunal had noted the

facts that the invoices issued by the “LINKED IN” towards advertisement

expenses in June 2014 were admitted as liability and crystallized for

payment in the year under consideration owing to the fact that the

“LINKED IN” being non-resident had furnished the necessary documents in

the such as TRC under Section 90(4) (of Income Tax Act, 1961) read with Rule 21 (of Income Tax Rules, 1962) AB of the

Rules and no PE certificate etc. only in the assessment year under

consideration. Further the tribunal noted it is not the case where these

expenses were charged as deduction in the preceding year more

importantly, the tribunal noted that there is no revenue implication and no

prejudice is caused to the revenue since the tax rate applicable to the

assessee during the assessment year 2015-2016 to which invoices relates

and the tax rates applicable for the assessment year 2016-2017 in which

the invoices were accounted and paid were the same.

13. At this juncture, we take note of the decision in the case of the

Hon’ble Supreme Court in Malabar Industrial Company Limited Versus

Commissioner of Income Tax 1 wherein it was held that every loss of

revenue cannot be treated as prejudicial to the interest of revenue and if the assessing officer has adopted one of the courses permissible under law or where two views are possible and the assessing officer has taken one view

with which the CIT does not agree, it cannot be treated as an erroneous

order, unless the view taken by the assessing officer is unsustainable under

law. Furthermore, on facts the tribunal found that the PCIT has not carried

out any enquiry on his own and merely set aside the assessment order and

sent the file back to the assessing officer to re-examine the issues which is contrary to the law as laid down in several decisions and the tribunal rightly noted the decision in Income Tax Officer Versus DG Housing Projects

Limited.

14. Thus, for all the above reasons, we find that no questions of law much

less substantial questions of law arises for consideration in this appeal.

Accordingly, the appeal fails and is dismissed.

(T.S. SIVAGNANAM, J)

I agree

(HIRANMAY BHATTACHARYYA, J)