2024 (7) TMI 429 - AT - Income Tax

Validity of Revision u/s 263 - eligibility to deduction u/s 80P on interest on its deposits (seed capital) with a cooperative bank - As per CIT no enquiry was conducted and no application of mind applied by the learned assessing officer on the issues of claim of deduction under section 80P(2)(d) and verification of expenditure - HELD THAT - We are principally in agreement with the Ld. AR that the interest income received by a co-operative society on its deposits with a co-operative bank would be entitled for deduction u/s. 80P(2)(d) of the Act, but at the same time, we find from a perusal of the record that the A.O while framing the assessment had at no stage verified the authenticity of the claim of the assessee society that the deduction raised by it u/s. 80P(2)(d) of the Act pertained to the interest income on its deposits parked with a co-operative bank/banks. As nothing is discernible from the record nor any material has been filed before us in the course of hearing of the appeal, which would reveal that the assessee's claim for deduction u/s. 80P(2)(d) of the Act was raised as regards the interest income earned on its deposits lying with a co-operative bank/banks, therefore, to the said extent, we concur with the CIT that the A.O without carrying out any verification on the aforesaid material aspect had summarily accepted the claim of the assessee society for deduction u/s. 80P(2)(d) of the interest income (restricted in the computation of income i.e. the net taxable income disclosed in the return of income for the subject year). Accordingly, in terms of our aforesaid observations the order of the Pr. CIT to the said limited extent is upheld. Whether AO has after application of mind arrived at plausible view on the issue ? - Nothing is discernible therefrom which would reveal that the seed money of the assessee was lying in the form of deposits with a co-operative bank, which thus, would have entitled it to claim deduction u/s. 80P(2)(d) of the Act. Also, a perusal of the notices issued by the A.O u/s. 142(1) of the Act does not reveal that he had in the course of the assessment proceedings on any occasion raised any query on the aforesaid material aspect and verified, i.e. whether the interest income of Rs. 6.02 crore (approx.) on seed capital which was claimed as deduction u/s. 80P(2)(d) was earned from its funds parked with a co-operative bank/banks. Accordingly, to the said extent, we are unable to concur with the Ld. AR that as specific queries to the extent relatable to its entitlement for deduction u/s. 80P(2)(d) of the Act were raised by the A.O in the course of the assessment proceedings and were duly answered by the assessee society, therefore, the Pr. CIT in the garb of his powers u/s. 263 of the Act had wrongly assumed jurisdiction and set-aside the order of the A.O. Failure of the A.O to carry out necessary verification - We are unable to persuade ourselves to subscribe to the contention of the Ld. ARs that as the A.O while framing assessment had raised queries and deliberated on the replies filed by the assessee society qua both the aforesaid issues, viz. (i) verification of the assessee's claim for deduction u/s. 80P(2)(d) of the Act of interest received from banks on FDRs, FFD and SB interest etc.; and (ii) verification of the assessee's claim for expenditure; and had arrived at a plausible view, therefore, the Pr. CIT in exercise of powers vested with him u/s. 263 of the Act had grossly erred in law and facts of the case by seeking substitution of his view as against that arrived at by the A.O. As in the present case before us, the A.O while framing of the assessment had not queried on the material aspects pertaining to the both the issues, on which, the Pr. CIT had set-aside his order u/s. 263 of the Act, viz. (i) non-verification of satisfaction of the requisite conditions rendering the assessee eligible to claim deduction on interest on bank deposits (seed money) u/s. 80P(2)(d) of the Act; and (ii) non-verification of the claim of expenditure in the agency's profit and loss account of the assessee society, therefore, the judicial pronouncements that had been relied upon by the Ld. AR to impress upon us that where the A.O had while framing the assessment arrived at a plausible view on the issue, the same cannot be substituted in the garb of powers vested with the CIT u/s. 263 of the Act, being distinguishable on facts would by no means assist the case of the present assessee society before us. AR's contention that the Pr. CIT had grossly erred in law and facts of the case by passing an order u/s. 263 of the Act without calling for and examining the records of the assessee society - We are of a firm conviction that pursuant to the specific reference of examination of the income tax records of the assessee society by the Pr. CIT in the SCN dated 11.03.2021, and also, similar reference of perusal of the assessment records, financial statements etc. in the body of his order reveals beyond doubt that the case records of the assessee society were called for and examined prior to assumption of jurisdiction by the Pr. CIT u/s. 263 of the Act. In our considered view once the Pr. CIT in the SCN, dated 11.03.2021 had observed that he had examined the records, then it cannot be presumed on the mere say of the assessee that he had without examining the assessment records and application of mind to the same had assumed jurisdiction and issued show cause notice to the assessee u/s. 263 of the Act. Non independent application of mind by CIT - Pr. CIT after receiving the proposal from the ACIT-1(1), Raipur had duly applied his mind to the records before him for arriving at a view that due to certain failure of the A.O to carry out necessary inquiries/verifications the assessment order passed by him u/s. 143(3) of the Act dated 28.12.2018 was rendered as erroneous in so far it was prejudicial to the interest of the revenue and thus, validly assumed jurisdiction u/s. 263 of the Act; and (ii) that there was no restriction on the Pr. CIT to have acted upon material placed before him by the A.O for arriving at a prima facie view that the order so passed u/s. 143(3) of the Act being erroneous and prejudicial to the interest of the revenue was amenable for revision u/s. 263 of the Act, thus are unable to concur with the aforesaid contentions advanced by the Ld. AR. Pr. CIT was divested of his jurisdiction u/s. 263 of the Act to adopt a view that was inconsistent with that which was adopted by the department in the said earlier years - All that is required as per Section 263 of the Act is that in case if the Pr. CIT finds that the order passed by the A.O is found to be erroneous in so far it is prejudicial to the interest of the revenue, then, he remains well within his jurisdiction to revise the same. Apart from that, we cannot also loose sight of the fact that the department taking cognizance of the fact that the A.Os while framing the assessments in the case of the assessee had failed to verify certain identical aspects, which thus, had rendered their respective orders as erroneous in so far it was prejudicial to the interest of the revenue for A.Y.2015-16, A.Y.2017-18 and A.Y.2018-19 had taken recourse to the corrective mechanism contemplated u/s. 263 of the Act. Apart from that, we find that as had been brought to our notice by the Ld. DR, the erroneous claim of the assessee society had also not been accepted by the department in the succeeding years i.e. A.Y.2019-20 onwards and had been corrected while framing assessments for the said years. All that is required for the Pr. CIT to exercise the jurisdiction vested with him u/s. 263 of the Act is a cumulative satisfaction of the conditions therein contemplated, i.e. if he considers that any order passed by the Assessing Officer is erroneous in so far it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, revise the order in exercise of powers vested with him under the said statutory provision. As nothing is provided in Section 263 of the Act, which jeopardizes the exercise of revisional jurisdiction by the Pr. CIT on the ground that a similar mistake in the preceding year had not been set-right and was allowed to perpetuate, therefore, we find no substance in the Ld. AR's contention who based on the same had tried to circumscribe the scope of jurisdiction of the Pr. CIT u/s. 263 of the Act. Also, we cannot loose sight of the fact that as every assessment year is an independent year and the principle of res-judicata is not applicable to taxing statutes, therefore, on the said count also the aforesaid contention of the Ld. AR does not merit acceptance. PCIT has revised the order w/o making or causing to be made any inquiry - We are unable to fathom that now when the assessee society on the one hand had neither provided the requisite details substantiating the genuineness of its claim of deduction and expenditure before the A.O nor in the course of the revisional proceedings before the Pr. CIT, then, what inquiry by the revisional authority in absence of the said complete details was expected. CIT in our view after considering the circumstances of the case, in all fairness, remanded the matter for fresh adjudication on the aforesaid issues. We, thus, in terms of our aforesaid observations, finding no substance in the claim of the Ld. AR that the Pr. CIT without carrying out any inquiry had wrongly held the order passed by the A.O u/s. 143(3) of the Act dated 28.12.2018 as erroneous in so far it was prejudicial to the interest of the revenue u/s. 263 of the Act, reject the same. CIT had passed the order u/s. 263 without applying his mind to assessee's submission - One can comprehend that in a case where the details as were called for by the revisional authority were though fully made available but the latter had without applying his mind to the same had held the order passed by the A.O as erroneous and prejudicial to the interest of the revenue that the assessee would be justified in carrying a grievance that without dislodging the authenticity of his claim and considering the supporting material the revisional authority had without application of mind most arbitrarily held the order as erroneous and prejudicial to the interest of the revenue u/s. 263 of the Act. However, it is incomprehensible that while for the assessee society before us had adopted an evasive approach and failed to come forth with the requisite details not only in the course of the assessment proceedings, but also failed to provide the same despite specific directions by the revisional authority, thereafter, is carrying a grievance that the Pr. CIT had failed to apply his mind to the issues and mechanically revised the order passed by the A.O. As in the present case before us, the Pr. CIT by drawing support from the powers vested with him under Explanation 2(a) to Section 263(1) of the Act which vested with him the jurisdiction to hold the order passed by the A.O as erroneous and prejudicial to the interest of the revenue, if the same had been passed without making any inquiries which should have been made, had set-aside the assessment order, therefore, the exercise of jurisdiction by him in the backdrop of our aforesaid deliberations does not suffer from any infirmity. Decided against assessee.

Summary

Issues Involved:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Claim of deduction under Section 80P(2)(d) of the Act.
3. Verification of expenditure.
4. Non-application of mind by the Assessing Officer (AO).
5. Consistency in the treatment of income in previous assessment years.
6. Adequacy of inquiries conducted by the Principal Commissioner of Income Tax (Pr. CIT).

Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act, 1961:

The Pr. CIT assumed jurisdiction under Section 263 of the Act, believing that the assessment order passed by the AO was erroneous and prejudicial to the interest of the revenue. The Pr. CIT issued a "Show Cause Notice" (SCN) to the assessee society, stating that the AO had failed to conduct necessary inquiries and apply his mind to the issues of claim of deduction under Section 80P(2)(d) and verification of expenditure. The Pr. CIT relied on "Explanation 2" to Section 263, which allows revision if the AO's order is passed without making necessary inquiries or verification.

2. Claim of Deduction under Section 80P(2)(d) of the Act:

The assessee society claimed a deduction under Section 80P(2)(d) for the interest income earned on its seed capital deposited with a cooperative bank. The Pr. CIT observed that the AO had not verified whether the interest income was indeed from deposits with a cooperative bank, which is a prerequisite for claiming the deduction under Section 80P(2)(d). The Tribunal upheld the Pr. CIT's observation that the AO had summarily accepted the assessee's claim without proper verification.

3. Verification of Expenditure:

The Pr. CIT noted that the AO had failed to verify the veracity of certain expenses claimed by the assessee society, such as "payable to society" and other heads like "Incentive Wages," "Sale Purchase & Processing of Non-Nationalized MFP," and "Revolving Fund." The Tribunal agreed with the Pr. CIT that the AO's failure to verify these expenses rendered the assessment order erroneous and prejudicial to the interest of the revenue.

4. Non-application of Mind by the Assessing Officer (AO):

The Pr. CIT concluded that the AO had not applied his mind while framing the assessment order, as evidenced by the lack of proper inquiries and verification. The Tribunal supported this view, stating that the AO's failure to conduct necessary inquiries justified the Pr. CIT's exercise of jurisdiction under Section 263.

5. Consistency in the Treatment of Income in Previous Assessment Years:

The assessee argued that the AO's treatment of its income in the current year was consistent with the treatment in previous assessment years, where similar claims were accepted. However, the Tribunal noted that the principle of consistency does not apply if a mistake was made in earlier years. The Tribunal emphasized that each assessment year is independent, and the Pr. CIT was justified in revising the order if it was found to be erroneous and prejudicial to the interest of the revenue.

6. Adequacy of Inquiries Conducted by the Principal Commissioner of Income Tax (Pr. CIT):

The Tribunal observed that the Pr. CIT had called for and examined the records of the assessee society before issuing the SCN and passing the order under Section 263. The Tribunal rejected the assessee's claim that the Pr. CIT had merely acted upon the reasons recorded by the ACIT-1(1), Raipur, without independent application of mind. The Tribunal upheld the Pr. CIT's order, stating that the Pr. CIT had applied his mind and conducted necessary inquiries before concluding that the assessment order was erroneous and prejudicial to the interest of the revenue.

Conclusion:

The Tribunal dismissed the appeals filed by the assessee society, upholding the Pr. CIT's orders under Section 263 for the assessment years 2015-16, 2016-17, 2017-18, and 2018-19. The Tribunal found no infirmity in the Pr. CIT's exercise of jurisdiction under Section 263, as the AO had failed to conduct necessary inquiries and verification, rendering the assessment orders erroneous and prejudicial to the interest of the revenue.