2022 (11) TMI 1110 - AT - Income Tax

Revision u/s 263 by CIT - deduction u/s. 80G for the donations made by the assessee to nine different charitable trusts - HELD THAT - The requisite documents desired by the CIT in the revisionary proceeding for justifying the claim of deduction made by the assessee u/s. 80G in the form of donation receipts and approvals issued by the department to the donees u/s. 80G(5)(vi) are on record. Validity of approval granted to the three trusts out of four as noted by CIT in his show cause notice is covered by the circular issued by CBDT vide circular no. 7/2010 referred above. In respect of one other trust, certificate of approval has been issued for perpetuity, unless otherwise withdrawn. All these details in respect of donations made by the assessee are duly reported in the return form and the AO has called for necessary details and has examined the veracity of claim of deduction made by the assessee. Deduction of tax at source on the commission paid by the assessee to two of its managing/whole time directors which is directed to be disallowed u/s. 40(a)(ia) - Counsel has evidently demonstrated that the said payment forms part of the salary of the two directors which has been subjected to TDS u/s. 192 - We also note that issue relating to compliance of section 197 of the Companies Act, 2013 though not formed part of the show cause notice issued by the Pr. CIT, has been evidently demonstrated to be complied with, by the assessee as noted above. All the evidence in respect of TDS done on the amount of commission paid to the two directors and as reported in Form 16 as well as in quarterly TDS statement filed by the assessee, are on record which factually demonstrates that commission paid has been subjected to required TDS which is contrary to the observations made by the Pr. CIT. Double claim of depreciation by the assessee on the fixed assets of its SEZ unit at Falta - Assessee has factually demonstrated that no such double claim much less the original claim of depreciation has been made by the assessee in computing the eligible profits of the SEZ unit for making a claim of deduction u/s. 10A of the Act. Details of this computation have already been noted above. Also important to note that the monetary eligible limit for the assessee for claiming deduction u/s. 10A was of Rs.23.57 Cr. but against this, it had restricted the deduction of Rs.7.50 Cr. only, owing to its planned capital expenditure in future. We note that all these working details were furnished in the course of assessment proceedings filed with e-portal and were also placed before the Pr. CIT in the revisionary proceeding. We find that the three issues in the present case are purely on facts which are verifiable from the records of the assessee. Examination and verification of the same as placed in the paper book also reveals the correct state of its affairs in respect of the issues raised in the impugned revisionary proceedings for which both, ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert the verifiable factual position. Accordingly, on the three issues raised by the PCIT in the revisionary proceedings, no action u/s 263 of the Act is justifiable - Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction by the Ld. Pr. CIT under section 263 of the Income-tax Act, 1961.
2. Claim of deduction under section 80G for donations made by the assessee.
3. Disallowance under section 40(a)(ia) for commission paid to the Managing Director/Directors without tax deduction at source.
4. Alleged double claim of depreciation on fixed assets of SEZ unit at Falta.

Detailed Analysis:

1. Assumption of Jurisdiction by Ld. Pr. CIT under Section 263:
The appeal concerns the Ld. Pr. CIT invoking section 263 of the Income-tax Act, 1961, to revise the assessment order passed under section 143(3). The Ld. Pr. CIT observed three issues that led to the revisionary proceedings, setting aside the original assessment order and directing the AO to reassess considering these issues.

2. Claim of Deduction under Section 80G:
The Ld. Pr. CIT noted that the assessee claimed a deduction under section 80G for donations amounting to Rs. 3,81,72,500/-. However, the AO allegedly did not verify the proof of receipts and certificates from the donees. The Ld. Pr. CIT found that donations to three trusts totaling Rs. 95 lakh were unverified and that certificates for other donations were missing from the assessment records. The assessee argued that all relevant documents, including donation receipts and 80G certificates, were submitted during the assessment and revisionary proceedings. The Tribunal found that the necessary documents were indeed on record, and the AO had duly verified the claim during the assessment.

3. Disallowance under Section 40(a)(ia) for Commission Payments:
The Ld. Pr. CIT observed that the assessee paid commissions to its directors without deducting TDS, resulting in an underassessment of income. The assessee contended that the commissions were part of the directors' total remuneration, which was subjected to TDS under section 192. The Tribunal noted that the assessee provided evidence of TDS deductions and payments, and the AO had examined these during the assessment. Additionally, the issue of compliance with section 197 of the Companies Act, 2013, was not raised in the show cause notice but was addressed by the assessee, demonstrating compliance.

4. Alleged Double Claim of Depreciation:
The Ld. Pr. CIT alleged that the assessee claimed depreciation twice on the fixed assets of its SEZ unit. The assessee explained that the SEZ unit maintains separate books, and the profits were calculated considering the depreciation as per both the Companies Act and the Income-tax Act. The Tribunal found that the assessee's claim was accurate and that the AO had verified this during the assessment. The Tribunal also noted that the assessee limited its deduction claim under section 10A to Rs. 7.50 crore, well within the eligible limit.

Conclusion:
The Tribunal concluded that the Ld. Pr. CIT did not apply his mind adequately to determine that the assessment order was erroneous and prejudicial to the revenue's interest. The Tribunal emphasized that both conditions must be satisfied for invoking section 263. The Tribunal referred to the Supreme Court's decision in Malabar Industries Ltd. vs. CIT, which states that an order is erroneous if it is based on incorrect facts, incorrect application of law, or if the AO has not investigated the issue. The Tribunal found that the AO had duly examined and verified all issues during the assessment, and the Ld. Pr. CIT's order did not meet the criteria for invoking section 263. Therefore, the Tribunal quashed the impugned order and allowed the assessee's appeal.