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TMI Blog2024 (11) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... a decision rendered in the case of CIT Vs. Sunbeam Auto [ 2009 (9) TMI 633 - DELHI HIGH COURT] wherein, while considering the distinction between lack of inquiry and inadequate inquiry, the Hon'ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry. Accordingly, when the AO has taken a legally plausible view, duly supported by judicial precedents, then, in our considered view the Principal CIT is precluded from taking recourse to 263 proceedings only with a view to substitute another view with that of the view taken by the AO, unless the view taken by the Assessing Officer is wholly unsustainable - Assessee appeal allowed. - Smt. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member For the Appellant : Shri Tushar Hemani, Sr. Adv. Shri Parimalsinh B. Parmar, A.R. For the Respondent : Shri A.P. Singh, CIT DR ORDER PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short Ld. PCIT ), Ahmedabad-1, vide order dated 29.02.2024 passed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring a total income of Rs. Nil. However, the Assessing Officer (AO) completed the assessment under Section 143(3) read with Section 144B of the Income Tax Act (Act) on April 22, 2021, determining the assessed income at Rs. 3,37,97,789/-. The AO made several additions, including Rs. 1,56,10,238/- under Section 14A, a disallowance of employee contributions to the Provident Fund amounting to Rs. 88,94,666/- under Section 36(1)(va), a disallowance of Rs. 57,74,100/- concerning commission paid to non-residents and a sum of Rs. 35,18,785/- under Section 36(1)(iii) of the Act. 4. Subsequently, upon reviewing the records, Principal CIT noted that the Auditors of Kiri Industries i.e. the assessee had certified that an interest amount of Rs. 13,56,539/- had been paid by the assessee under Sections 201(1A) and 206C(7) towards late payment of TDS. Principal CIT observed that the AO did not disallow these expenses, which were categorized as penalties by the Auditors of the assessee company. Principal CIT was of the view that the AO's failure to disallow this amount led to the assessment order as being erroneous and prejudicial to the interests of the Revenue. Accordingly, Principal CIT issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) lacks the authority to invoke revisionary jurisdiction. This principle is reinforced by the Supreme Court decision in Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83. In the present case, the learned Principal CIT failed to recognize that both conditions are necessary for the invocation of revisionary powers. If either condition is absent, the Principal CIT cannot proceed under section 263 of the Act. Furthermore, it is a well-established legal principle that interest on late payment of Tax Deducted at Source (TDS) under section 201(1) of the Act is considered compensatory in nature and, therefore, deductible under section 37. This stance of the assessee is supported by several court rulings, including Resolve Salvage Fire India (P.) Ltd. (2022) 195 ITD 266 (Mum), Kaypee Mechanical India P. Ltd. (2014) 223 Taxman 346 (Guj), and several decisions from the Supreme Court, such as Mahalaxmi Sugar Mills Co. (1980) 123 ITR 429 and Triveni Engineering Works Ltd. (1983) 144 ITR 732. Therefore, even on substantive grounds, the addition proposed by the Principal CIT is untenable given the established legal principles. Consequently, the Counsel for the assessee submitted that the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred by the assessee on account of late deposit of service tax and TDS after having reliance on the judgment of Hon'ble Supreme Court in the case of Bharat Commerce Industries Ltd. v. CIT (1998) (supra). The relevant extract of the judgment reads as under : FACTS During the year under consideration, the assessee failed to pay advance tax equivalent to 75 per cent of estimated tax. The Assessing Officer levied\section 215 as well as under section 139. The assessee claimed that were payable were delayed, the assessee's financial resources increased available for business purposes. Hence, the interest which was paid Government was interest on capital that would be borrowed by the assessee otherwise. Hence, the amounts should be allowed as deduction. The allow such deduction. The High Court affirmed the view. On appeal to the Supreme Court: HELD When interest is paid for committing a default in respect of a statutory liability 10 advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 TTR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB) wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue. In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. The above principles can be applied to the interest expenses levied on account of delayed payment of TDS as it relates to the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue. 10. In a decision rendered by Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), wherein, while considering the distinction between lack of inquiry and inadequate inquiry, the Hon'ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry 12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'. 11. Accordingly, when the Assessing Officer has taken a legally plausible view, duly supported by judicial precedents, then, in our considered view the Principal CIT is precluded from taking recourse to 263 proceedings only with a view to substitute another view with that of the view taken by the Assessing Officer, unless the view taken by the Assessing Officer is wholly unsustainable. However, as noted by us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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