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2022 (11) TMI 625 - AT - Income TaxRevision u/s 263 by CIT - Deduction of expenses from additional income (on money) declared u/s 69A - service tax which is related to on money and remuneration paid to partners - HELD THAT - As decided in MASKAR GENERAL HOSPITAL 2011 (8) TMI 1144 - GUJARAT HIGH COURT additional income, i.e. on money received by assessee is from business, therefore the service tax which relates to on-money should be allowed as deduction and partners remuneration should also be allowed as deduction. We note that during the assessment proceedings, the AO issued notice to the assessee asking the assessee to justify service tax and partners remuneration. The said notice of AO is placed at paper book page no.16. In response to the show-cause notice of the AO, the assessee submitted its reply to the Assessing Officer which is placed - Thus, we note that Assessing Officer has conducted inquiry on the issues raised by Ld. PCIT in his order under section 263 - AO also applied his mind and took possible view, thus order passed by the AO is neither erroneous nor prejudicial to the interest of revenue. The order of the AO can be held to be erroneous order, that is (i) if the AO s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)AO s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the AO can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. Hon ble Supreme Court in the case of Malabar Industries 2000 (2) TMI 10 - SUPREME COURT held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. When the AO adopted one of the courses permissible in law and it has resulted in loss to the revenue, 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 prejudicial to the interest of the revenue unless the view taken by the AO is unsustainable in law . Since the order of the AO cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is null in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 - Appeal of the assessee is allowed.
Issues Involved:
1. Legality of the revisionary order under section 263 of the Income Tax Act. 2. Applicability of section 115BBE for taxing 'on money' disclosed by the assessee. 3. Eligibility of deductions under sections 37 and 40(b) for service tax paid and remuneration to partners. Detailed Analysis: 1. Legality of the Revisionary Order under Section 263 of the Income Tax Act: The assessee challenged the revisionary order passed by the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, which set aside the assessment order under section 143(3) for the assessment year 2015-16. The Pr. CIT found the assessment order erroneous and prejudicial to the interest of revenue, primarily due to the incorrect allowance of deductions claimed by the assessee. The Tribunal noted that the Assessing Officer (AO) had conducted inquiries and applied his mind to the issues, making the original assessment order neither erroneous nor prejudicial to the revenue. Citing the Supreme Court's ruling in Malabar Industries Ltd. vs. CIT, the Tribunal emphasized that an order cannot be deemed prejudicial to the revenue simply because it results in a loss of revenue if the AO's view is a legally permissible one. Consequently, the Tribunal quashed the Pr. CIT's order, deeming it unsustainable in law. 2. Applicability of Section 115BBE for Taxing 'On Money' Disclosed by the Assessee: The Pr. CIT held that the 'on money' disclosed by the assessee should be taxed under section 69A and that the provisions of section 115BBE, which disallow any deductions against such income, were applicable. However, the Tribunal found that the 'on money' was related to the assessee's business income from construction activities. The Tribunal referred to the Gujarat High Court's judgment in Suman Papers & Boards Ltd., which allowed deductions under Chapter VI-A for business income, including undisclosed income. The Tribunal concluded that since the 'on money' was business income, the provisions of section 115BBE were not applicable, and the AO's allowance of deductions was justified. 3. Eligibility of Deductions under Sections 37 and 40(b) for Service Tax Paid and Remuneration to Partners: The assessee claimed deductions for service tax paid (Rs. 39,33,270) and remuneration to partners (Rs. 24,00,000) under sections 37 and 40(b), respectively. The Pr. CIT disallowed these deductions, citing section 115BBE. The Tribunal, however, upheld the assessee's claims, noting that the service tax and remuneration were legitimate business expenses. The Tribunal referenced the Gujarat High Court's decision in Mhaskar General Hospital, which supported the allowance of such deductions for business income. The Tribunal also noted that the AO had inquired into these deductions during the assessment proceedings and had taken a permissible view. Therefore, the Tribunal found no error in the AO's order and allowed the deductions. Conclusion: The Tribunal concluded that the AO's original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The Tribunal quashed the Pr. CIT's revisionary order under section 263, allowing the assessee's appeal. The judgment emphasized the importance of AO's discretion in taking permissible views and the necessity of both conditions (erroneous and prejudicial) being met for invoking section 263.
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