2023 (3) TMI 30 - AT - Income Tax

Revision u/s 263 by CIT - As per CIT AO has failed to make proper enquiry on Computation of disallowance of expenditure u/s 14A and deduction of employee's contribution for the purpose of Section 36(1)(va) - HELD THAT - AO has already analyzed the issues, sought explanation from the assessee and taken a plausible view. There cannot be a gauge that the enquiry conducted is sufficient or not when the specific issue has already been considered in the assessment proceedings before her. As regards the disallowance u/s. 14A the specific detailed working and explanation along with the evidence that the sufficient fund was available with the assessee company to make the investment even though the disallowance under section 14A r.w.r 8D was made by the assessee company. AR submitted that all the relevant information was also placed on record to decide the issue on hand by the AO. The same is supported by a detailed submission before the assessment proceedings. Thus, the issue was considered by the ld. AO based on the submission and material placed on record. For employee's contribution for the purpose of Section 36(1)(va) following the jurisdictional high court the ld. AO has allowed the deduction of the payment made before the due date of filling return for PF and ESI which is also a one of the views based on the submission made by the assessee company. So, on both the issue the ld. AO has given his attention and sufficient enquiry was conducted by the ld. AO. On the contrary PCIT has not specified what enquiry should have been done by the ld. AO. In the absence such clear finding how the order is prejudicial and erroneous. The ld. PCIT cannot gauge that what the specific level up to which the ld. AO has ask the details so as to reach the level of enquiry which that the PCIT deem it fit. AO has not violated any direction or instruction of the board. The order also not violates any binding judicial decision. He further submitted that the issue raised by the PCIT has already been raised and the relevant aspect of the facts on the same very issue is seen by the AO. The ld. AR demonstrate before us that the AO has raised which the PCIT is contending in the proceeding under section 263 of the Act. He has also demonstrated before us that the AO has made necessary enquiry on the issue based on the submission made by the assessee. The ld. AO has taken the plausible view on both the issue as per the submission placed on record. This action of the AO is not proved to be prejudicial or erroneous on any of the angel by the PCIT while issuing the show cause notice to the assessee company. In that circumstance the provision of section 263 and its explanation 2 will not apply. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. Thus issue has already been raised in the assessment proceedings and was after deliberation was considered. Based on the contentions and judicial precedent cited by the assessee the assessing officer satiated himself and has taken a plausible view. Based on the set of evidence before him the AO has taken a view which is also one of the views and there is no clear finding of the ld. Pr. CIT as to why and how the view taken by the assessing officer is not legally correct when he has asked the relevant information and taken a view in the matter. - Decided in favour of assessee.

Issues Involved:

1. Whether the assessment order was erroneous and prejudicial to the interest of revenue.
2. Whether the Principal Commissioner of Income Tax (PCIT) erred in passing the order without providing an adequate opportunity of being heard.
3. Whether the Assessing Officer (AO) failed to make proper inquiries or verification regarding the computation of disallowance of expenditure under Section 14A and the deduction of employee's contribution under Section 36(1)(va) of the Income Tax Act.
4. Whether the AO took a plausible view considering judicial precedents and sufficient material available on record.

Issue-wise Detailed Analysis:

1. Whether the assessment order was erroneous and prejudicial to the interest of revenue:

The Principal Commissioner of Income Tax (PCIT) invoked Section 263 of the Income Tax Act, asserting that the assessment order was erroneous and prejudicial to the interest of revenue. The PCIT argued that the AO did not verify the amount of disallowance under Section 14A as per Rule 8D and failed to disallow the employee's contribution to PF and ESI deposited beyond the prescribed due dates under Section 36(1)(va). However, the ITAT found that the AO had raised specific queries during the assessment proceedings and had taken a plausible view based on the submissions and judicial precedents provided by the assessee. The ITAT held that merely because the PCIT disagreed with the AO's view, it did not render the assessment order erroneous or prejudicial to the interest of revenue.

2. Whether the Principal Commissioner of Income Tax (PCIT) erred in passing the order without providing an adequate opportunity of being heard:

The assessee contended that the PCIT passed the order without providing an adequate opportunity of being heard. The ITAT noted that the PCIT issued a show-cause notice and the assessee submitted a detailed reply. However, the PCIT did not provide a specific finding on how the AO's order was erroneous and prejudicial to the interest of revenue. The ITAT emphasized that the principles of natural justice require that the assessee be given a fair opportunity to present their case, which was not adequately provided by the PCIT.

3. Whether the AO failed to make proper inquiries or verification regarding the computation of disallowance of expenditure under Section 14A and the deduction of employee's contribution under Section 36(1)(va) of the Income Tax Act:

The PCIT argued that the AO failed to make proper inquiries or verification regarding the disallowance under Section 14A and the deduction under Section 36(1)(va). However, the ITAT found that the AO had issued specific queries regarding these issues during the assessment proceedings. The assessee provided detailed submissions and documentary evidence, which the AO considered before passing the assessment order. The ITAT held that the AO's inquiries were sufficient and the view taken was plausible based on the facts and judicial precedents.

4. Whether the AO took a plausible view considering judicial precedents and sufficient material available on record:

The ITAT observed that the AO had taken a plausible view considering the judicial precedents and sufficient material available on record. The AO accepted the assessee's computation of disallowance under Section 14A after verifying the details provided. Similarly, the AO allowed the deduction under Section 36(1)(va) based on the jurisdictional High Court's decision that contributions deposited before the due date of filing the return of income are allowable. The ITAT concluded that the AO's order was not erroneous or prejudicial to the interest of revenue, as it was based on a plausible view supported by judicial precedents.

Conclusion:

The ITAT held that the PCIT's invocation of Section 263 was not justified as the AO had made proper inquiries, considered the submissions, and taken a plausible view based on judicial precedents. The assessment order was neither erroneous nor prejudicial to the interest of revenue. The ITAT set aside the PCIT's order and restored the AO's assessment order.

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