2024 (6) TMI 642 - AT - Income Tax

Revision u/s 263 - annuity amount paid to LIC was not made by the employer rather this payment was made on the request of the employees out of the VRS amount - claim of exemption u/s 10(10CC) made by the assessee was wrong and incorrect - Similarly, the claim for exemption u/s 10(10BB) of the Act was also allowed by the AO without making any enquiry from the employer - HELD THAT - As revealed from the enquiry made by the Ld. PCIT that the exemption claimed u/s 10(10CC) of the Act and u/s 10(10B) of the Act was not correct and not in accordance with the provisions of law. The deduction u/s 10(10CC) of the Act is available in respect of tax paid by employer for a non-monetary perquisite derived u/s 17(2) of the Act. The employer can t claim any deduction for such perquisite and the same is liable to be disallowed u/s 40(a)(v) of the Act. AO didn t make any enquiry from the employer about payment of perquisite which was claimed exempt u/s 10(10CC) of the Act and had allowed the claim of the assessee. The enquiry made by the PCIT from the employer revealed that neither any perquisite was paid to the assessee nor the employer had made any disallowance u/s 40(a)(v) - Therefore, the claim of exemption u/s 10(10CC) of the Act made by the assessee was wrong and incorrect. Similarly, the claim for exemption u/s 10(10BB) of the Act was also allowed by the AO without making any enquiry from the employer. It is thus evident from the above facts, that the AO had not conducted proper inquiries in respect of the claims as made in the return of income and, therefore, the order was rightly treated as erroneous and pre-judicial to the interest of revenue by the Ld. PCIT. As pointed out by the Ld. CIT-DR, it was held in the case of Navnit Lal Sakar Lal 2000 (11) TMI 1 - SUPREME COURT that the amount utilized by the employer for obtaining deferred annuity policy would form part of remuneration payable to the assessee and was chargeable under the head salaries . Therefore, the annuity amount of Rs. 15 lakh paid to LIC by the employer was remuneration of the assessee and taxable as salary. As the order of the AO was not in accordance with the decision of the Apex Court the order of the AO was erroneous and pre-judicial to the interest of revenue for this reason as well. The decisions relied upon by the Ld. AR are all found different on facts and not applicable to the peculiar facts of this case. It is a trite law and a well settled position that non application of mind or wrong assumption of facts or incorrect application of law by the A.O. will make the order erroneous and pre-judicial to the interest of Revenue. Therefore, we do not find anything wrong with the assumption of jurisdiction u/s 263 of the Act by the Ld. PCIT as the order of the AO was erroneous and pre-judicial to the interest of Revenue for the reasons as already discussed above. We, therefore, upheld the order of the Ld. PCIT. The grounds of appeals taken by the assessee are dismissed.

Summary

Issues Involved:
1. Validity of invoking provisions u/s 263 of the Income Tax Act, 1961.
2. Examination of the Assessing Officer's (A.O.) order for being erroneous and prejudicial to the interest of revenue.
3. Examination of specific exemptions claimed by the assessees.

Summary:

1. Validity of invoking provisions u/s 263 of the Income Tax Act, 1961:
The Principal Commissioner of Income Tax (PCIT) initiated proceedings u/s 263 of the Income Tax Act, 1961, after examining the case records and finding the A.O.'s order erroneous and prejudicial to the interest of revenue. The PCIT found that certain exemptions were wrongly allowed, contrary to the provisions of law, in respect of salary income. The PCIT issued an order u/s 263 dated 29.03.2023, setting aside the assessment to the file of the A.O. for fresh consideration.

2. Examination of the Assessing Officer's (A.O.) order for being erroneous and prejudicial to the interest of revenue:
The A.O. had accepted the returned income without proper verification of the exemptions claimed by the assessees. The PCIT observed that the A.O. allowed exemptions based on the assessee's submissions without proper inquiry or verification. The A.O.'s order was found to be erroneous as it allowed deductions more than the VRS benefits received, and the exemptions were not recorded or allowed by the employer in Form 16. The PCIT's inquiry revealed that the annuity amount paid to LIC was on the request of the employees and was part of their taxable income.

3. Examination of specific exemptions claimed by the assessees:
The exemptions in question included:
- Rs. 15,00,000/- paid by the employer to LIC for purchasing an annuity policy.
- Rs. 4,50,000/- claimed u/s 10(10CC) of the Act.
- Rs. 4,51,900/- claimed as retrenchment compensation u/s 10(10B) of the Act.

The A.O. did not verify the claims with the employer and accepted the assessee's explanations without further inquiry. The PCIT's inquiry with the employer confirmed that the annuity payment was part of the VRS amount and taxable as salary. The exemptions claimed u/s 10(10CC) and u/s 10(10B) were found to be incorrect.

Conclusion:
The ITAT upheld the PCIT's order u/s 263, stating that the A.O.'s order was erroneous and prejudicial to the interest of revenue due to the lack of proper inquiry and verification. The appeals filed by the assessees were dismissed, and the revisionary orders passed by the PCIT were upheld.

Result:
The appeals filed by all nine assessees were dismissed.